Crypto should go out with a bang this year.
Heading into the fourth quarter, bitcoin rode a wave of strong ETF inflows, digital asset treasuries (DATs) pitched themselves as leveraged bets on the next leg higher, and analysts dusted off charts that showed the last three months of the year as crypto’s most reliable winning streak.
Add in the promise of looser monetary policy and a friendlier political backdrop in Washington, and many investors convinced themselves that bitcoin is headed for new record highs by the end of the year.
Instead, here’s what happened: A $19 billion liquidation cascade in October blew a hole in liquidity, spot altcoin ETFs failed to offset the selling pressure, and the new crop of government-heavy crypto stocks have already begun to transform from structural buyers to potential forced sellers.
Bitcoin is down 23% since the start of October – ugly performance in itself, but even uglier given the continued gains in stocks and precious metals.
Here’s how each of the big year-end “catalysts” went from promised flywheel to grinding headwind.
DAT’s flywheel becomes a tail spinner
The frenzy of digital asset sovereign bonds – hastily formed IPOs (mostly this year) trying to copy the strategy of Michael Saylor ( MSTR ) – promised a flywheel for crypto prices and constant buying pressure.
After a short bout of buying excitement in the spring, however, investors quickly lost enthusiasm. Then, as crypto prices began to sink through October, sales in DATs really accelerated. Their stock prices fell, with most companies falling below their net worth, limiting their ability to issue stock and debt to raise money. At first the purchases slowed down, then they stopped altogether – with only a few exceptions. Now, DATs, instead of their original plans to convert investors’ fiat currency into crypto holdings, are now starting to use dollars to buy back shares. The latest was former highflyer turned penny stock KindlyMD ( NAKA ), whose shares have fallen so low that its bitcoin holdings are worth more than double the company’s enterprise value.
The worry is that many more could follow suit and possibly become forced sellers, unloading assets on an already fragile market and turning the supposed flywheel into a market-weighing tailspin.
Altcoin ETFs
As market sentiment worsened across the board, the much-anticipated debut of spot altcoin ETFs in the US didn’t have a chance to make an impact – despite some of them garnering commendable inflows.
Solana ETFs have brought in $900 million in assets since the end of October, SoSoValue data shows. XRP vehicles surpassed $1 billion in net inflows in just over a month.
However, the strong demand did not translate into the prices of the underlying tokens. SOL has plummeted 35% since the ETF debut, while XRP is down nearly 20%.
ETFs for smaller altcoins – hedera (HBAR), , – meanwhile saw negligible demand as risk appetite faded.
Seasonality
Analysts pointed to bitcoin’s historically strong year-end, with the fourth quarter producing the asset’s strongest return. This year is shaping up to provide investors with a stark reminder of an old adage: past performance does not guarantee future performance.
Since 2013, bitcoin’s average fourth-quarter return was 77%, with a median gain of 47%, CoinGlass data shows. In the past twelve years, eight of them have had positive returns – the best hit ratio among all quarters.
The outliers? 2022, 2019, 2018 and 2014 – deep bear markets.
2025 is well on its way to joining them. BTC is down 23% since the start of October. That would qualify as the worst last quarter in seven years if bitcoin stays at current levels.
Invalid liquidity
The $19 billion liquidation cascade on October 10 – which sent BTC tumbling from $122,500 to $107,000 in one way, with far greater percentage drops across the rest of crypto – was damaging in more ways than one. Many believed that the institutionalization via ETFs would make crypto immune to this kind of drawdown, but in reality it showed that a market historically dominated by speculative mania had not changed, just shifted into a new form.
Two months on, and not only has liquidity and market depth failed to recover from the sell-off, it has also dented investor confidence, which is now taking a wide berth from any form of leverage.
Bitcoin actually hit a local low on November 21st at $80,500, since then it has climbed back to relative safety after hitting a high of $94,500 on December 9th. But during that period, open interest has continued to trend downward, falling from $30 billion to $28 billion, according to Coinalyze.
This shows that the recent price rally can be attributed to short positions closing as opposed to genuine buyer demand, a scenario unimaginable to many who were wrapped up in the Trump, ETF and DAT narratives of 2025.
What are the 2026 Catalysts?
Bitcoin and the broader crypto market have underperformed stocks and precious metals since the October blowout; The Nasdaq Composite is up 5.6% since October 12, gold is up 6.2%, while bitcoin is down 21% over the same period.
This radically poor performance signals two things: the 2025 catalysts didn’t live up to expectations, and the 2026 catalysts simply aren’t there.
At the beginning of the year, Trump season was in full effect, easier regulations around crypto and a US bitcoin strategy were touted, while spot ETF flows continued to break records.
But that tension slowly subsided to a point now where one of the only bullish catalysts is a rate-cutting cycle that is believed to have a positive impact on risk assets like bitcoin. The Federal Reserve cut in September, October and December, only for BTC to lose 24% of its value since the September meeting.
As bitcoin bulls begin grasping at straws over potential bullish catalysts, agnostic traders can see the warning signs. DATs invested heavily in crypto at the peak, with several of these treasury mNAVs now falling below one. CoinShares said in early December that in many ways the DAT bubble has already burst.
This could lead to a major drop in the crypto market as some companies may be forced to liquidate holdings into a market that lacks any kind of liquidity to handle waves of selling pressure.
Even Strategy (MSTR) CEO Phong Le recently alluded to the company potentially selling BTC if mNAV falls below 1.0, though it’s worth noting that the tech company is still raising billions of dollars to buy BTC, so that remains a worst-case scenario.
There is a bullish spin to all of this, as when these companies start winding down, it is probably a good time to buy, as seen in the 2022 bear market following the collapse of Celsius, Three Arrows Capital and FTX.
