Grayscale believes Bitcoin’s recent downturn is indicating a local bottom rather than a significant peak, forecasting a break from the traditional four-year halving cycle and potential all-time highs by 2026.

Indicators suggest a local bottom is forming, shown by Bitcoin’s (BTC) increased option skew above 4, indicating that investors have hedged extensively against downside risks. Despite a considerable 32% drop, Grayscale’s report highlights that the current market context may be mistakenly viewed as a peak in its four-year cycle, though they believe Bitcoin could exceed its previous price levels the following year.

Bitcoin pullback Bitcoin pullback, compared to previous drawdowns. Source: research.grayscale.com

Bitcoin’s short-term recovery could be hindered until several key indicators, including futures open interest and ETF inflows, exhibit reversal signs. In November, US spot Bitcoin ETFs faced significant outflows of $3.48 billion, marking one of the largest net withdrawals on record, as indicated by Farside Investors.

Bitcoin ETF Flow Bitcoin ETF Flow, in USD, million. Source: Farside Investors

Recently, however, the trend appears to be reversing, with funds reporting four straight days of inflows, including a modest $8.5 million influx on a Monday, suggesting renewed interest from ETF buyers.

According to Iliya Kalchev, a digital asset platform Nexo analyst, current market positioning indicates a chance for a leverage reset instead of a drastic change in sentiment, centering on whether Bitcoin can regain the low-$90,000s range to avoid dipping to mid- or low-$80,000 support levels.

Fed’s Decisions and US Crypto Bills as 2026 Influencers

Market analysts are closely monitoring the impending interest rate decision from the US Federal Reserve set for December 10, which is poised to be a pivotal factor for 2026’s trends. Grayscale reports that market expectations for a 25 basis point rate cut have surged to 87%, up from 63% observed a month prior.

Interest rate cut probabilities Interest rate cut probabilities. Source: CMEgroup.com

In 2026, ongoing developments surrounding the Digital Asset Market Structure Bill may serve as a significant booster for institutional participation in the crypto sector. It’s emphasized that bipartisan support is crucial for progress during the upcoming US midterm elections. The initial steps in this direction were marked by the passage of the CLARITY Act, progressing further under the Republicans’ crypto agenda in July. Senate leaders have expressed intentions to enhance the House bill, aiming to create broader regulations for digital asset markets.

Tim Scott, the Chair of the Senate Banking Committee, indicated plans for the bill’s potential enactment by early 2026.