Bitcoin, crypto: is this a bear market?

It’s been a strange year and it’s hard to even know where to begin when taking stock of where the bitcoin market currently is and where it might be heading. We might as well start with the simplest ones. The meme known as the “three green one red pattern” looks dead. For the first time ever, the year following a halving looks to be closing in the red. This might be a simplistic pattern, but it has weirdly held over a full three cycles prior to this one. No more.

That said, the 4 year cycle itself looks to have held—at least so far. While it’s hard to definitely declare this bull market dead, it certainly looks like we had another classic Q4 bull market bust in the third cycle year. We may indeed be staring the bear straight in the eyes. 

That in itself would be remarkable, and we’ll revisit some of the signs that the party is indeed over later in this piece. For now though, let’s just leave it at the cycle remaining intact, but that it has also been the most lacklustre cycle by far. So bad in fact that year three—traditionally the strongest year—looks to end in the red. Strange indeed, but why?

US Bitcoin ETF: likely cause of the market strangeness

A few weeks ago, an essay floated around X making an interesting argument regarding the market conditions we’ve found ourselves in for the last few years. As everyone at this point knows, the bitcoin market was forever changed when, after 10 years of unsuccessful attempts, bitcoin ETFs were finally approved and began trading in early 2024. Not only were the ETFs seen as an endorsement of bitcoin’s market maturity by the financial regulators of the world’s largest market, but they’ve been a resounding success, amassing more than $100bn in AUM in less than 2 years—the fastest ever attained by any ETF.

On the back of the ETFs, other derivatives have also launched, with the IBIT options market being the most impactful. Taken together, these developments have added an enormous amount of liquidity to bitcoin. That sounds great, and to be fair, bitcoin is still trading far above the prices at the time of the ETF launch. But the upwards pressure has stalled, lately something seems to be weighing heavily on the market.  It appears to be a huge amount of selling pressure coming from long term bitcoin holders.

Back to the aforementioned essay. In it, Jordi Visser makes the argument that the launch of US ETFs can be compared to an IPO-like event for bitcoin. Prior to this, bitcoin’s ‘cap table’ so to speak, was heavily populated by large, early adopters, often holding positions worth hundreds of millions, or even billions of dollars which they had patiently sat on for up to15 years.

In previous cycles, even the 2019-2021 cycle where prices went as high as $69,000 per bitcoin, any attempt to liquidate positions like that would have completely cratered the market. Even at the arguably impressive liquidity levels attained by bitcoin by 2022, the sheer volume of holdings potentially seeking exit would at least not have been able to exit at valuations resembling those of the 2021 all time high.

That has now changed. With the deepening of post-ETF markets, and the ascent of prices into the six-figure range, it is obvious that many early adopters, such as Owen Gunden,  have taken the opportunity to de-risk and diversify. In other words bitcoin is currently undergoing a similar post-IPO distribution as those we’ve seen time and time again from maturing startups entering public markets. Here, there’s often a multi-year period after the IPO where the asset trades in a ‘suppressed’ manner as old stakeholders exit, and new, hopefully long-term investors take on their mantle.

Old coins still represent a large proportion of total Bitcoin supply

How long should we expect this redistribution to take? Perhaps historical tech IPOs can give us an idea of timing in similar situations. Looking at bitcoin’s price performance after the US ETF launches compared to some historical tech companies after their IPOs, the chart suggests bitcoin is right in the middle, performing just fine compared to other assets. 

If this trend holds for bitcoin, we could be in for a few more years of ‘boring’ price action (that is, no more annual 10x moves) before old holders have been fully cycled out and the coins have their value reset at a higher, less tempting, cost basis.

Bitcoin’s market cap relative to equities at IPO could draw distribution out

One issue that could end up drawing out the distribution process for bitcoin, however, is its relative size at ‘Neo-IPO’ compared to the tech companies we looked at in the previous section. Two years post IPO, the average market cap of the above companies was $5.84bn (in 2025 dollars). The implication is simply that old bitcoin holders are sitting on much larger unrealised gains, and that their distribution requires a bigger nominal amount of dollar inflows to fully satiate.

At around ~$2tn, bitcoin’s market cap is more than 300 times the size the aforementioned equities were in their first few years post-IPO. That said, bitcoin also appeals to a wider global audience, and it also competes for a share in a much larger market. A light at the end of the tunnel can therefore be gleaned in the distance, but it will likely take some time before it is immediately in front of us.

Even if this is actually a bear market, it’s probably more Teddy than Grizzly

Underestimating bear markets is of course a risky business, but the backdrop this time around just doesn’t seem nearly as bad as in previous downturns. If we remember back to 2021-2022 alone, the bear came amidst a full-scale implosion of a whole slew of market participants and infrastructure providers. On top of that, the Federal Reserve embarked on the steepest trajectory of interest rate increases in modern memory. Inflation hit eye-watering levels and things in general just looked grim.

I could always be wrong. There might be unidentified bodies ready to float to the surface among major crypto market participants. Perhaps the economy is much worse than it looks from our vantage point. Recessions and downturns are rarely foreseen by the market as a whole.

But the macro picture this time just seems different. We see tailwinds, not headwinds. Whereas the last bear market hit during an incredibly hawkish period for monetary policy, this time around that simply is not the case. Even the current FED has been easing rates for a few years already, and by mid-2026, a new, undoubtedly dovish, chairman will be at its helm. Other positions are also up for renewal. The FED of next summer could be a much different beast than today’s.

In our view, we would need another ‘black swan’ style event for the Teddy to turn Grizzly. That is per definition impossible to predict—and ‘black swans’ do have an uncanny ability to turn up right during downturns—but even in its absence, the bull market has probably at least had enough air punched out of it that new highs are unlikely to materialise any time soon.

Why so bearish?

For me it’s mostly a case of market psychology and the indicators we can use to assess it. While I am not fully convinced this will end up being counted as a bear market (any more than the 9 month ‘chopsolidation’ we had last year will be), I think it’s more than 50% likely, so we should definitely explore why and what it would mean.

The percent of bitcoin supply in profit recently dropped well below mean and approached its 1 standard deviation below mean mark for the first time since 2021. This simply means that a lot of bitcoin owners, and in particular more recent buyers, are sitting on large unrealised losses. Oftentimes, this translates into buyers remorse, and exiting of positions for short term holders.

This dynamic tends to play out after every bull market, and in order to resolve it the market simply needs time to hammer out a new bottom and find its footing. With the recent collapse of the basis rate, there’s additional potential for outflow pressure hitting the ETF market as the large trading desks exit their spot positions.

As mentioned above, this need not translate into a ‘traditional’ cyclical bitcoin bear market (we doubt those cycles have much airtime left in them), but it’s enough that we recommend caution in the current market conditions. It is possible that major macro tailwinds, or some major positive accumulation announcements could bring us out of the downturn early, however, my base case is that this will simply take time to resolve.

For long term holders I believe this is an excellent opportunity to manage cost basis, but as always, we don’t recommend timing the market, and instead taking some time to establish positions at attractive long term base levels.