Grayscale Research challenges the widespread belief in Bitcoin’s four-year cycle theory, arguing the crypto will likely reach new highs in 2026 despite the recent 30% drawdown since early October.
The asset manager’s latest analysis contends that Bitcoin’s current market structure, dominated by exchange-traded products and corporate treasuries rather than retail exchanges, fundamentally differs from previous cycles and won’t follow historical patterns of deep, prolonged declines.
Source: GrayscaleThe report comes as Bitcoin tests critical support levels below $90,000, with Strategy’s unprecedented decision to establish a $1.44 billion cash reserve.
While institutional players, including BlackRock, Vanguard, and JPMorgan, liquidated $5.38 billion in Strategy shares during Q3, venture capital poured a record $14.48 trillion into crypto projects in November alone.
Market Dynamics Signal Potential Bottom Formation
Bitcoin’s latest pullback aligns with historical averages despite appearing severe to newer market participants.
The crypto has experienced roughly 50 drawdowns of at least 10% since 2010, with an average peak-to-trough decline of 30%, nearly matching the current 32% drop from recent highs.
Source: GrayscaleSince bottoming in November 2022, Bitcoin has declined by at least 10% on nine occasions, making this the ninth meaningful pullback during the latest bull market.
Grayscale distinguishes between “cyclical drawdowns” lasting 2-3 years and “bull market drawdowns” averaging 25% over 2-3 months, categorizing the current situation as the latter.
Several technical indicators suggest capitulation may be complete. Bitcoin put option skew has reached elevated levels across 3- and 6-month tenors, indicating extensive hedging of downside risk.
CryptoQuant data reveals that on-chain traders, those holding Bitcoin between one and three months, are experiencing their largest percentage loss of this cycle, with a realized price of $113,692 representing 20-25% losses over two weeks.
These phases have historically been associated with the formation of bottoms, as traders ultimately choose between selling and holding.
Meanwhile, accumulation patterns continue among large holders. One whale purchased 2,612 Bitcoin worth $227 million over the past week, while major corporate treasuries trade at discounts to the net asset value of their Bitcoin holdings.
However, futures open interest declined further in November, and exchange-traded product flows remained negative until late in the month, suggesting demand recovery remains incomplete.
A spike in Coin Days Destroyed during late November indicated another round of selling by longtime holders, similar to activity observed in July.
Strategy’s Reserve Triggers Sector-Wide Concerns
Strategy’s announcement fundamentally alters the corporate Bitcoin accumulation narrative that drove markets throughout 2025.
The company now holds 650,000 Bitcoin, approximately 3.1% of the total 21 million supply, but its market capitalization of $49.26 billion falls below the value of its $55.9 billion Bitcoin holdings.
CEO Phong Le confirmed that the reserve currently covers 21 months of dividend and interest payments, totaling approximately $689 million annually, and is funded through common stock sales.
The company carries $8.2 billion in debt and $800 million in annual preferred dividends, while its software business faces continued cash flow challenges.
“Establishing a USD Reserve to complement our BTC Reserve marks the next step in our evolution,” Michael Saylor stated, adding the move would help navigate short-term volatility while delivering on the vision of becoming the world’s leading issuer of digital credit.
The company updated its fiscal 2025 guidance, projecting operating income between a loss of $7 billion and a gain of $9.5 billion based on year-end Bitcoin prices ranging from $85,000 to $110,000.
The shift comes amid mounting pressure ahead of MSCI’s January 15, 2026, decision on whether to exclude companies that hold more than half their assets in cryptocurrency from global indices.
JPMorgan estimates this could trigger forced institutional selling between $2.8 billion and $8.8 billion, affecting entities collectively holding over $137 billion in digital assets and approximately 5% of all Bitcoin in existence.
Speaking with Cryptonews, Farzam Ehsani, CEO of VALR, warned that Bitcoin could test the $60,000-$65,000 range if market declines continue.
However, recovery may begin once Strategy resolves regulatory concerns and index firms clarify their positions.
“Strategy is a key player in the crypto market, and its potential problems could cause Bitcoin’s price to drop by another 30%,” Ehsani stated.
Ray Youssef, CEO of NoOnes, also cautioned that they’re seeing record venture capital inflows, meaning institutions are accumulating the lows.
“Selling BTC to retail investors at $200,000 per coin is an appealing idea,” Youssef stated, suggesting major assets may experience delayed price recovery in Q1 2026 following successful market institutionalization.
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