Bitcoin's recent 32% decline from all-time highs may represent a local bottom rather than the start of a prolonged bear market, with asset manager Grayscale arguing that evolving market dynamics will break the cryptocurrency's traditional four-year halving cycle in 2026.
The firm published a Monday research report challenging the widely held belief that Bitcoin's price must peak and undergo severe correction every four years in alignment with its halving schedule. "Although the outlook is uncertain, we believe the four-year cycle thesis will prove to be incorrect, and that Bitcoin's price will potentially make new highs next year," Grayscale analysts stated.
Bitcoin traded at $86,909 as of early Tuesday after briefly touching $84,000 on Monday, representing a steep drop from its October peak of approximately $126,210. The selloff has erased roughly $140 billion from the cryptocurrency market while triggering concerns about whether the asset is entering a multi-year downturn similar to previous bear cycles.
However, Grayscale identified several structural differences in the current market that suggest the traditional cyclical pattern no longer applies. Unlike prior bull markets dominated by retail speculation and parabolic rallies, institutional capital now flows primarily through exchange-traded products and corporate treasuries rather than spot exchanges, creating deeper liquidity and slower emotional swings.
What Happened
Grayscale's analysis highlighted that Bitcoin's options skew has risen above 4, indicating investors have already hedged "extensively" for downside exposure - a metric often associated with market bottoms rather than ongoing capitulation. The firm noted that the current cycle has not exhibited the blow-off top that typically precedes major reversals, with growth remaining steadier and more institutionally driven.
US spot Bitcoin ETFs, which powered much of the cryptocurrency's 2025 momentum, recorded $3.79 billion in net outflows through November, surpassing the previous record of $3.56 billion from February and making it the second-worst month on record. BlackRock's iShares Bitcoin Trust alone saw $2.47 billion in redemptions, accounting for roughly 63% of total monthly withdrawals.
The tide appears to be turning, however. Bitcoin ETFs have logged four consecutive days of inflows through Monday, including a modest $8.5 million on the most recent trading day, suggesting institutional appetite is gradually returning following the sharp correction.
Market positioning indicators point to a "leverage reset rather than a sentiment break," according to Iliya Kalchev, dispatch analyst at digital asset platform Nexo. The key technical question centers on whether Bitcoin can reclaim the low-$90,000 range to avoid sliding toward mid-to-low-$80,000 support levels.
BitMine CEO Tom Lee echoed Grayscale's optimistic outlook, noting a growing disconnect between market fundamentals and prices. "Crypto prices have fallen relentlessly even as fundamentals, measured by wallets, onchain, fees or tokenization, have moved forward," Lee stated, arguing that Bitcoin could hit new all-time highs as early as January 2026.
Read next: Nearly $1 Billion In Crypto Bets Wiped Out As Bitcoin Slides Below $86,000 Mark
Why It Matters
Grayscale identified two critical catalysts that could drive Bitcoin's recovery and validate the firm's thesis that traditional four-year cycles no longer govern price action: Federal Reserve monetary policy and US regulatory clarity.
Markets are pricing in an 88% probability of a 25 basis point interest rate cut at the Fed's December 10 meeting, according to CME Group's FedWatch tool - up from 63% one month earlier. The expected reduction to a 3.50%-3.75% target range would improve liquidity conditions and support risk assets including cryptocurrencies.
Grayscale emphasized that the Fed's decision and monetary policy guidance will serve as a significant catalyst for 2026 performance. The central bank's increasingly accommodative stance represents a supportive macro backdrop that contrasts sharply with prior cycles dominated by tightening financial conditions.
Legislative progress toward comprehensive cryptocurrency regulation offers another potential tailwind. Senate Banking Committee Chair Tim Scott stated in November that he expects the Digital Asset Market Structure bill to reach committee votes in December, with a Senate floor vote targeted for early 2026.
The legislation, which builds on the House-passed CLARITY Act, aims to delineate regulatory jurisdiction between the Securities and Exchange Commission and Commodity Futures Trading Commission while establishing clear frameworks for digital asset markets. Scott emphasized that the bill could drive "institutional investment in the industry" once signed into law, though he stressed the importance of maintaining bipartisan support to avoid the issue becoming politicized during midterm elections.
For Bitcoin investors, Grayscale's analysis suggests the current market structure fundamentally differs from previous cycles in ways that could support sustained growth rather than prolonged downturns. The concentration of institutional capital in ETF vehicles provides more stable flows compared to retail-driven speculation, while corporate treasury adoption - led by firms like Strategy with 650,000 BTC holdings - creates persistent demand regardless of short-term price volatility.
The firm's argument hinges on the premise that Bitcoin has matured from a purely speculative retail asset into an institutional investment vehicle with different cyclical characteristics. If Grayscale and Lee prove correct, the market may be misreading the current correction as the beginning of a multi-year bear market when it actually represents consolidation before the next expansion phase driven by regulatory clarity and monetary easing.