Cryptocurrencies were supposed to come out strong this year.
Heading into the fourth quarter, bitcoin was riding a wave of strong ETF inflows, digital asset treasuries (DATs) were being pitched as leveraged bets on the next leg up, and analysts were dusting off charts showing the final three months of the year as cryptocurrencies’ most reliable winning streak.
Add to that the promise of looser monetary policy and a friendlier political environment in Washington, and many investors became convinced that Bitcoin would reach new record prices by the end of the year.
Instead, here’s what happened: A $19 billion liquidation cascade in October caused a liquidity hole, altcoin spot ETFs failed to offset the selling pressure, and the new crop of treasure-rich crypto stocks have already begun to transform from structural buyers to potential forced sellers.
Bitcoin is down 23% since the beginning of October – an ugly performance in itself, but even uglier considering the continued rallies in stocks and precious metals.
This is how each of the great “catalysts” of the end of the year went from the promised steering wheel to the headwind.
The DAT steering wheel spins
The digital asset treasury frenzy – hastily formed (mostly this year) publicly traded companies trying to replicate Michael Saylor’s (MSTR) strategy – promised a flywheel for cryptocurrency prices and constant buying pressure.
However, after a brief bout of buying enthusiasm in the spring, investors quickly lost enthusiasm. Then, as cryptocurrency prices began to sink through October, sales in DAT really accelerated. Their sock prices plummeted and most companies fell below their net asset value, limiting their ability to issue equity and debt to raise money. At first, purchases slowed, then stopped completely, with only a couple of exceptions. Now, DATs, instead of their initial plans to convert investors’ fiat currency into cryptocurrency holdings, are starting to use dollars to buy back shares. The latest was KindlyMD (NAKA), a former high-flying company turned penny stock, whose shares have fallen so low that its bitcoin holdings are worth more than twice the company’s enterprise value.
The concern is that many more could follow suit and possibly become forced sellers, dumping assets into an already fragile market, sending the so-called flywheel into a tailspin, weighing down the market.
Altcoin ETFs
As market sentiment deteriorated across the board, the long-awaited debut of spot altcoin ETFs in the US had no chance of making an impact, even though some of them racked up commendable inflows.
Solana ETFs have contributed $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, that strong demand did not translate into the prices of the underlying tokens. SOL has plummeted 35% since the ETF’s debut, while XRP is down almost 20%.
Smaller altcoin ETF – hedera (HBAR), , – Meanwhile, it saw negligible demand as risk appetite disappeared.
Seasonality
Analysts pointed to bitcoin’s historic year-end strength, with the fourth quarter producing the asset’s highest returns. This year is on track to offer investors a stark reminder of an old saying: past performance is no guarantee of future results.
Since 2013, bitcoin’s average return in the fourth quarter was 77%, with an average gain of 47%, CoinGlass data shows. In the last twelve years, eight of them had positive returns: the best success rate of all quarters.
The outliers? 2022, 2019, 2018 and 2014: deep bear markets.
The year 2025 is on track to join them. BTC is down 23% since the beginning of October. That would qualify as its worst last quarter in seven years if bitcoin remains at current levels.
Liquidity gap
The $19 billion liquidation cascade on October 10, which saw BTC plummet from $122,500 to $107,000 in a matter of hours, with much larger percentage drops across the rest of the cryptocurrencies, was damaging in more ways than one. Many thought that institutionalization through ETFs would make cryptocurrencies immune to this type of drawdown, but in reality it demonstrated that a market historically dominated by speculative mania had not changed, it had simply adopted a new form.
Two months later, market liquidity and depth not only failed to recover from the sell-off, but also affected the confidence of investors, who are now avoiding any type of leverage.
Bitcoin did indeed hit a local low on November 21 at $80,500, and has since recovered to relative safety after hitting a high of $94,500 on December 9. 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 appreciation can be attributed to the closing of short positions rather than genuine buyer demand, an unthinkable scenario for many who got caught up in the Trump, ETF and DAT 2025 narratives.
What are the catalysts for 2026?
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 indicates two things: the catalysts for 2025 did not live up to expectations and the catalysts for 2026 simply are not there.
At the beginning of the year, Trump season was in full effect, touting lighter regulations around cryptocurrencies and an American bitcoin strategy, while ETF spot flows continued to break records.
But that enthusiasm slowly waned to a point where one of the only bullish catalysts is a cycle of rate cuts that is perceived to have a positive impact on risk assets like bitcoin. The Federal Reserve made cuts in September, October and December, only for BTC to lose 24% of its value since the September meeting.
As bitcoin bulls begin to grasp at straws over possible bullish catalysts, agnostic traders can see the warning signs. DATs invested heavily in crypto at the top, and several of those treasury company mNAVs now fall below one. CoinShares said in early December that the DAT bubble had, in many ways, already burst.
This could cause a significant drop in the cryptocurrency market, as some companies could be forced to liquidate their holdings in a market that lacks any type of liquidity to deal with waves of selling pressure.
Even Strategy (MSTR) CEO Phong Le recently alluded that the company could sell BTC if mNAV falls below 1.0, although it’s worth noting that the tech company is still raising billions of dollars to buy BTC, so this remains a worst-case scenario.
There is a bullish spin on all of this, as when these companies start to close 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.
