The cryptocurrency market is entering a structural phase of migration from weak hands to strong hands, laying the foundation for the next cycle.

Abstract

By the end of 2025, the cryptocurrency market is in a deep oscillation period driven by macro factors: Bitcoin remains in the high range of $90,000, but sentiment has plunged to extreme fear levels not seen since the pandemic in 2020. Massive outflows from ETFs, structural turnover among whales, and retail investors cutting losses have collectively formed a typical mid-bull market "reallocation of chips." Meanwhile, expectations for interest rate cuts in the U.S. have been repriced, and concerns about sustained high rates have significantly compressed the valuations of risk assets. Although external macro liquidity has not deteriorated—Japan, China, and Europe are all shifting towards easing—the pace is more reliant on single data points, placing the market in a rare combination of "liquidity-friendly, cold sentiment." The credit pressure from the AI bubble has also intensified cross-asset risk transmission, squeezing cryptocurrency assets in terms of funds, attention, and narrative. Against this backdrop, the cryptocurrency market is entering a structural phase of migration from weak hands to strong hands, laying the foundation for the next cycle.

I. Macroeconomic Analysis of the Cryptocurrency Market

In the past few weeks of market turbulence, Bitcoin's price and sentiment have shown a rare and significant divergence: the price remains firmly above $90,000, but market psychology has plunged into the abyss of "extreme fear." The Fear and Greed Index briefly touched 16, the coldest sentiment reading since the global pandemic crash in March 2020; even with a slight recent recovery, it struggles in the 12-18 range. Positive narratives about Bitcoin on social media have also declined, quickly shifting from firm optimism to complaints, anger, and blame-shifting. This misalignment is not coincidental; it often occurs in the later stages of a bull market: early entrants have already accumulated significant unrealized gains, and once macro conditions show signs of trouble, they choose to cash out; meanwhile, latecomers who chased prices are quickly trapped in short-term fluctuations, amplifying the panic and disappointment in the market. Bitcoin is currently around $92,000, nearly flat compared to the beginning of the year (about $90,500), having experienced significant surges and deep corrections throughout the year, returning to near the starting point, presenting a "high-level oscillation and stagnation" market.

On-chain capital flows provide a more direct signal than sentiment. First, the role of spot ETFs has shifted from being the "booster engine" driving the bull market to a short-term "drainage pipe." Since November, ETFs have recorded over $2 billion in cumulative net outflows, with a single-day maximum outflow approaching $870 million, setting a new record for the worst performance since their launch. The impact on the narrative level is far greater than the funds themselves: the previous logic of "institutional long-term allocation" was the market's core support point, but this support has now shifted to reducing positions, leaving retail investors feeling insecure with the sentiment of "no adults to back them up." Whale behavior has also shown clear differentiation. Medium-sized whales holding 10-1000 BTC have continued to be net sellers in recent weeks, selling tens of thousands of Bitcoins, clearly cashing out as early players with substantial profits. In contrast, super whales holding over 10,000 BTC have been increasing their holdings, with on-chain data showing that some long-term strategic entities are accumulating against the trend during the downturn, with scales reaching tens of thousands of BTC. Meanwhile, net inflows from small retail investors (≤10 BTC) have also been slowly rising, indicating that while the most emotional novice users may panic and cut their positions, another group of more experienced long-term retail investors is seizing the opportunity to increase their positions. The on-chain realized loss metric has also recorded the largest single-day loss in the past six months, with a significant amount of chips being forced to sell at a loss, clearly signaling a typical "surrender-style sell-off." From various on-chain indicators, we see not a complete market withdrawal but a rapid reallocation of chips—from short-term, emotional funds to entities with longer patience and stronger risk tolerance, a structural phenomenon that often occurs in the later stages of major bull markets. The current market is in a high-level oscillation period in the latter half of the bull market—while market capitalization has retraced, it remains on a strong platform, sentiment has significantly cooled, structural differentiation has intensified, quality assets are resilient, but speculative assets continue to be cleared. The overall market capitalization of the cryptocurrency market is on a downward trend.

If on-chain data and sentiment explain short-term fluctuations, the true driver of this market direction is still macro interest rates—Bitcoin's true "dealer" is not institutions or whales, but the Federal Reserve. In the last quarter, the market generally bet that the Federal Reserve would gradually begin a rate-cutting cycle from the second half of 2024 to early 2025. Rate cuts mean a recovery in liquidity and an increase in risk asset valuations, thus becoming a key driving force behind the previous surge. However, a series of recent economic data and official statements have led to a strong repricing of this expectation. Although U.S. employment and inflation have slowed, they have not yet reached a level that would support aggressive easing; some officials have even released hawkish signals of "cautious rate cuts," causing the market to worry that high rates may be maintained longer than previously expected. The cooling of rate cut expectations will directly reduce the present value of future cash flows, thereby compressing the valuations of risk assets—high-elasticity sectors such as technology growth, AI, and cryptocurrency are the first to be affected. Therefore, the recent decline is not due to a lack of new narratives in the cryptocurrency industry, but rather a direct increase in the "discount rate" of the entire risk asset universe at the macro level, representing a violent valuation adjustment.

II. The Deep Impact of the AI Bubble on Cryptocurrency Macroeconomics

From 2023 to 2025, artificial intelligence has overwhelmingly become the core force in pricing global risk assets, replacing old narratives such as "metaverse," "Web3," and "DeFi summer," and becoming the primary driving force behind the expansion of capital market valuations. Whether it is Nvidia's market capitalization surpassing $1 trillion, OpenAI's infrastructure ambitions, or the explosive growth of super data centers and sovereign AI projects, the entire market has completed a paradigm shift from "technology growth" to "AI frenzy" in just two years. However, behind this feast lies an increasingly fragile leverage structure, ever-growing capital expenditures, and a financial engineering increasingly reliant on "internal circulation." The rapid inflation of AI valuations has made the entire high-risk asset system more fragile, with its volatility being directly and continuously transmitted to the cryptocurrency market through risk budgets, interest rate expectations, and liquidity conditions, profoundly affecting the cyclical structure and pricing framework of Bitcoin, Ethereum, and altcoins.

In institutional asset allocation systems, AI leaders have transformed from traditional growth stocks into "super technology factors," becoming the center of high-risk portfolios, even carrying endogenous leverage effects. When AI rises, risk appetite expands, and institutions naturally increase their allocation to high-risk assets, including Bitcoin; conversely, when AI experiences severe volatility, valuation pressure, or credit concerns, risk budgets are forced to contract, and model-driven and quantitative trading quickly reduce overall risk exposure, with cryptocurrency assets—being the most volatile and lacking cash flow support—often becoming the first targets for reduction. Therefore, the tug-of-war and pullback in the later stages of the AI bubble will simultaneously amplify the adjustments in the cryptocurrency market on both emotional and structural levels. This was particularly evident in November 2025: when AI-related tech stocks adjusted due to financing pressures, rising credit spreads, and macro uncertainties, Bitcoin and U.S. stocks simultaneously fell below key ranges, forming a typical "cross-asset risk transmission." Beyond risk appetite, the liquidity squeeze effect is the most critical suppressive factor of the AI bubble on the cryptocurrency market. In a macro environment of "limited funding pools," this inevitably means that the marginal funds for other high-risk assets are compressed, making cryptocurrencies the most obvious "sacrificial victims."

A deeper impact comes from the competition of narrative systems. In the construction of market sentiment and valuation, the importance of narrative is often not weaker than fundamentals. Over the past decade, the cryptocurrency industry has gained widespread attention and significant premiums through narratives such as decentralized finance, digital gold, and open financial networks. However, the AI narrative from 2023 to 2025 presents extreme exclusivity, with its grand narrative framework—"the core engine of the Fourth Industrial Revolution," "computing power as the new oil," "data centers as new industrial real estate," "AI models as the future economic infrastructure"—directly suppressing the narrative space of the cryptocurrency industry. At the policy, media, research, and investment levels, almost all attention is focused on AI, and Crypto can only regain its voice when global liquidity fully turns loose. This means that even if on-chain data is healthy and the developer ecosystem is active, the cryptocurrency industry struggles to regain valuation premiums. However, when the AI bubble enters a phase of bursting or deep adjustment, the fate of cryptocurrency assets may not be bleak and could even welcome decisive opportunities. If the AI bubble evolves along the path of the 2000 internet bubble—experiencing a 30%-60% valuation correction, with some high-leverage, high-narrative-driven companies being cleared out, and tech giants cutting capital expenditures, but the overall credit system remaining stable—then the short-term pain in the cryptocurrency market will yield significant mid-term benefits. If the risk evolves into a credit crisis similar to 2008, although the probability is low, the impact would be more severe. Breakdowns in the tech debt chain, concentrated defaults in data center REITs, and damage to bank balance sheets could trigger "systemic deleveraging," leading to a waterfall-like crash in cryptocurrencies similar to March 2020. However, such extreme situations often also mean a stronger medium- to long-term rebound, as central banks would be forced to restart QE, cut rates, or even adopt unconventional monetary policies. Cryptocurrencies, as tools to hedge against currency overissuance, would experience strong recovery in an environment of abundant liquidity.

In summary, the AI bubble is not the end of the cryptocurrency industry but rather a prologue to the next major cycle in cryptocurrency. During the bubble's upward phase, AI will squeeze the funds, attention, and narratives of cryptocurrency assets; while in the bubble's bursting or digestion phase, AI will release liquidity, risk appetite, and resources back into the market, laying the groundwork for the restart of the cryptocurrency industry. For investors, understanding this macro transmission structure is more important than predicting prices; the emotional low point is not the end but a key stage in the migration of assets from weak hands to strong hands; true opportunities often arise not in the noise but around the turning points of macro narrative shifts and liquidity cycle reversals. The next major cycle in the cryptocurrency market is likely to officially start after the tide of the AI bubble recedes.

III. Opportunities and Challenges in the Transformation of the Cryptocurrency Macroeconomic Market

By the end of 2025, the global macro environment is showing a structural change that is markedly different from previous years. After a two-year tightening cycle, global monetary policy has finally synchronized its shift, with the Federal Reserve having implemented two rate cuts in the second half of 2025 and confirmed the official end of quantitative tightening, halting the contraction of its balance sheet. The market expects a new round of rate cuts in the first quarter of 2026. This means that global liquidity is shifting from "draining" to "supplying," with M2 growth returning to an expansionary path and the credit environment significantly improving. For all risk assets, such cyclical turning points often indicate that new price anchors are being formed. For the cryptocurrency market, the timing of the global entry into a loosening cycle coincides with multiple factors such as internal leverage cleansing, extreme emotional lows, and ETF outflows hitting bottom, forming the basis for 2026 to potentially become a "restart point." Global synchronized easing is rare, but the macro landscape of 2025-2026 shows a high degree of consistency. Japan has launched a fiscal stimulus plan exceeding $100 billion, continuing its ultra-loose monetary policy; China is further strengthening both monetary and fiscal easing under economic pressure and structural demand; Europe is beginning discussions on restarting QE on the brink of economic recession. The simultaneous implementation of easing policies by major global economies is a super favorable factor that the cryptocurrency market has not encountered in recent years. The reason is that cryptocurrency assets are essentially one of the asset classes most sensitive to global liquidity, especially Bitcoin, whose valuation is highly correlated with the dollar liquidity cycle. When the world simultaneously enters an environment of "easing + weak growth," the attractiveness of traditional assets declines, and liquidity overflow will preferentially seek higher Beta assets, with cryptocurrency assets having experienced explosive growth in the past three cycles under such macro conditions.

At the same time, the endogenous structure of the cryptocurrency market has gradually recovered its robustness from the turmoil of 2025. Long-term holders (LTH) have not engaged in significant sell-offs, and on-chain data shows that chips are shifting from emotional sellers to high-conviction buyers; whales continue to accumulate during price corrections; the large-scale outflows from ETFs are primarily driven by retail panic rather than institutional withdrawals; the funding rate in the futures market has returned to neutral or even negative territory, with leverage completely squeezed out of the market. This combination indicates that the selling pressure in the market mainly comes from weak hands, while chips are concentrating in strong hands. In other words, the cryptocurrency market is in a position similar to Q1 2020: valuations are suppressed, but the risk structure is much healthier than it appears on the surface. However, the other side of opportunity is challenge. Although the easing cycle is returning, the spillover risk from the AI bubble cannot be ignored. The valuations of tech giants are nearing unsustainable levels, and if there is any deviation in the funding chain or profit expectations, tech stocks may experience severe adjustments again, and cryptocurrency assets, as high-risk counterparts, will inevitably bear the brunt of "systematic Beta sell-offs." Additionally, Bitcoin lacks decisive new catalysts in the short term. The ETF model for 2024-2025 has been fully priced in by the market, and new mainline narratives need to wait for whether the Federal Reserve will initiate QE, whether large institutions will return to accumulation paths, and whether traditional finance will accelerate its layout of cryptocurrency infrastructure. The continued outflow of ETFs reflects extreme fear among retail investors, and the panic index dropping to an extreme of 9 still requires time to complete a "surrender bottom," with the market needing to wait for new incremental signals. Considering the macro environment and market structure, from a temporal perspective, the cryptocurrency market will continue to oscillate and undergo bottoming out from Q4 2025 to Q1 2026. The pressures from the AI bubble, ETF outflows, and macro data uncertainties will collectively drive the market to maintain a weak oscillation pattern. However, as rate cuts accelerate in the first and second quarters of 2026 and substantial liquidity returns, BTC is expected to regain its position above $100,000, and with the accumulation of factors such as QE expectations, new narratives like DePIN/HPC, and national reserve BTC, a new bull market cycle confirmation may occur in Q3-Q4 2026. This path indicates that the cryptocurrency market is transitioning from the "valuation-killing phase" to the "repricing phase," and a true trend reversal requires a resonance between liquidity and narrative.

In this context, investment strategies need to be recalibrated to cope with volatility and capture opportunities. Dollar-cost averaging (DCA) during extreme fear intervals statistically yields optimal returns and is the best way to hedge against short-term noise and emotional fluctuations. In terms of position structure, the proportion of altcoins should be reduced while increasing the weight of BTC/ETH, as altcoins tend to decline more sharply during risk control compressions, while the ETF accumulation mechanism will continue to strengthen Bitcoin's relative advantage in the medium term. Given that tech stocks may undergo another round of "internet bubble-like" deep adjustments, investors should retain a reasonable amount of emergency funds to secure the best entry points when macro risk events trigger excessive sell-offs in cryptocurrency assets. From a long-term perspective, 2026 will be a key year for the redistribution of global liquidity and a year for the cryptocurrency market to return to the main stage after undergoing structural cleansing, with the true winners being those who maintain discipline and patience when sentiment is at its coldest.

IV. Conclusion

Considering on-chain structure, sentiment indicators, capital flows, and the global macro cycle, this round of decline resembles a severe turnover in the later stages of a bull market rather than a structural reversal. The repricing of interest rate expectations has led to short-term valuation pressure, but the global entry into a clear easing channel, synchronized stimulus from Japan and China, and the termination of QT mean that 2026 will be a key year for the expansion of liquidity. The AI bubble may continue to exert short-term drag, but its bursting or digestion will instead release the capital and narrative space that has been squeezed, providing new valuation support for scarce assets like Bitcoin. It is expected that from Q4 2025 to Q1 2026, the market will primarily focus on oscillation and bottom formation, while the rate-cutting cycle in Q2-Q4 2026 will become a window for trend reversal. Disciplined DCA, increasing BTC/ETH weight, and retaining emergency positions are the optimal strategies to navigate volatility and embrace the new cycle.

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