By the end of 2025, the crypto market is at a critical juncture. Bitcoin (BTC) is hovering around $90,000, the Fear & Greed Index has fallen to 25 (extreme fear), and short-term holder capitalization has reached its second-highest level in history, second only to the bottom of the 2024 yen carry trade crash. The FOMC meeting on December 10th has concluded, with the Federal Reserve (Fed) cutting interest rates by 25 basis points as expected, lowering the federal funds rate to 3.50%-3.75%, but its forward guidance has turned hawkish—only one rate cut is expected in 2026. This caused BTC to briefly fall below the $90,000 mark, with a muted market reaction and a "buy the rumor, sell the fact" correction.
However, the Fed simultaneously launched its Reserve Management Purchase (RMP) program, injecting $40 billion in short-term Treasury liquidity monthly. This is seen as a mild easing signal, a "non-QE," that could reshape market dynamics in 2026. In this "year-end exam," should investors "hold cash over the holidays" to anticipate a potential rebound, or "take profits" to lock in gains? This article, combining the impact of the FOMC, on-chain data, institutional trends, and historical patterns, explores allocation strategies and forecasts for 2026.
Interpretation of FOMC Resolution
The liquidity shift under hawkish rate cuts: The FOMC meeting was the last monetary policy decision in 2025. This time, the rate cut was approved by a 9:3 majority, but the "dot plot" shows that the rate cut path in 2026 has slowed down, with only one more 25 basis point room left.
This reinforces the narrative of a "hawkish rate cut": the Fed is concerned about a rebound in inflation and a soft landing in the job market, and is unwilling to be overly accommodative in the short term. The market had already priced in an 89% probability of a rate cut, resulting in only slight fluctuations in BTC after the event, while ETH consolidated around $3,000.
The impact on encryption is twofold:
Short-term pressures: Hawkish guidance exacerbated risk aversion, preventing BTC from rebounding to the expected high of $94,000 and instead triggering hundreds of billions of dollars in leveraged liquidations. Year-end liquidity is thin (e.g., perpetual contract open interest is down 40%-50% compared to October), coupled with the Bank of Japan's (BOJ) policy decisions, making the market prone to "post-pump dumping."
Long-term positive factors: QT (Quantitative Tightening) officially ended on December 1st, and the Fed's balance sheet began to recover after shrinking from $9 trillion to $6.5 trillion. The RMP program is equivalent to "hidden QE," expected to inject trillions of dollars of liquidity by 2026, driving a revaluation of risk assets. Historical data shows that liquidity inflection points often trigger crypto rallies (such as the BTC surge after the Fed's shift in 2024). Furthermore, the explosive growth of global M2 money supply, the weakening DXY US dollar index, and stimulus policies in China and the EU will further shift funds towards risk assets.
The FOMC reinforced the "macro-centric" narrative, suggesting that crypto is no longer solely driven by cycles but is linked to stocks and AI assets. Short-term volatility has increased, but liquidity injections are paving the way for 2026.
The appointment of the new Federal Reserve Chairman will also be a key variable in the liquidity environment in 2026. Jerome Powell's term as chairman will officially end in May 2026 (his term as a governor will last until January 2028). President Trump has indicated that he will announce his successor nominee in early 2026, and the current leading candidates are "two Kevins": Kevin Hassett, director of the National Economic Council (who advocates for more aggressive interest rate cuts), and former Federal Reserve governor Kevin Warsh (who recently visited the White House, emphasizing that he consulted the president on interest rate views).
The appointment of a chairman who is more pro-Trump and more inclined to loose monetary policy could strengthen the path of interest rate cuts in 2026 and accelerate the injection of liquidity, which would resonate with policies such as the RMP program and the national Bitcoin reserve, further boosting confidence in risk assets.
Institutional Trends Forecast: 2026 Strategic Planning – From “Defense” to “Structural Participation”
2025 is considered the "Year One of Crypto Mainstreaming," with institutional entry no longer seen as fringe experimentation but as a systemic transformation. According to a16z's "2025 State of Crypto Report," traditional financial institutions such as Visa, BlackRock, Fidelity, and JPMorgan Chase have fully launched crypto products, while tech-native players such as PayPal and Stripe are increasing their investment in payment infrastructure.
This marks a formalization shift from "retail-driven" to "institution-driven": a joint survey by EY-Parthenon and Coinbase shows that 83% of institutional investors plan to increase their crypto allocations by 2025, with DeFi exposure expected to jump from 24% to 75%, focusing on derivatives, lending, and yield opportunities.
Institutional allocation trends: From single BTC allocation to multi-asset portfolios
BTC remains the core asset, but its share is declining: BTC continues to dominate institutional positions as "digital gold" (ETF AUM has exceeded $168 billion, accounting for 60-80% of institutional crypto exposure), but institutions view it as a low-correlation diversification tool rather than a single speculative asset.
Expanding the portfolio to ETH, Altcoins, and emerging assets: Institutions are adding ETH (attractive staking yields), Solana (high TPS and institutional partners), stablecoins (payment infrastructure), and RWA (real-world asset tokenization). A Coinbase report shows that 76% of institutions plan to invest in tokenized assets in 2026, focusing on tokenized treasuries, private equity, and bonds that offer instant settlement and fractional ownership.
Pension funds and sovereign wealth funds are tentatively entering the market: although most exposure is indirect (such as the Norwegian fund holding BTC through MicroStrategy), a more direct allocation of 0.5-3% is expected in 2026 (through ETFs or tokenized instruments). Reports from BlackRock and others indicate that sovereign wealth funds and pension funds are recognizing crypto as a long-term diversification hedge, and their allocation ratios are gradually increasing.
Historical Pattern: The "Chinese New Year Effect" at the End of the Year for Bitcoin
The driving force behind the "Christmas low – Chinese New Year rebound" pattern
Western liquidity crunch: From December 20th to early January, European and American institutions entered holiday mode, resulting in a sharp drop in trading volume. In a low-liquidity environment, any selling pressure will amplify volatility and form a technical low.
Asian capital inflows: Around the Lunar New Year (late January to mid-February), year-end bonuses and red envelopes are distributed in mainland China, Hong Kong, Singapore, and other regions, leading retail investors and high-net-worth individuals to increase their allocation to risky assets. Historical data shows that in the two weeks leading up to the Lunar New Year, BTC buying volume on Asian exchanges (such as Binance and OKX) typically increases.
Institutional Rebalancing: January marks the start of a new fiscal year for institutions, prompting pension funds and hedge funds to reassess their asset allocations. If BTC shows relative resilience in December (e.g., a 5-10% correction in 2025), institutions are inclined to increase their holdings in January to catch up with benchmark returns.
On-chain data: Frequent appearance of bottom signals
Following the FOMC's hawkish rate cut, the crypto market entered a typical "year-end low liquidity" phase, with Bitcoin (BTC) fluctuating between $88,000 and $92,000, and the Fear & Greed Index falling to 25 (extreme fear). On the surface, this appears to be a "sell the fact" correction. However, on-chain data reveals more structural signals: deep capitalization among short-term holders, continued accumulation by long-term holders, accelerated outflow of exchange reserves, and bottoming characteristics in medium- and long-term indicators. This data suggests that the current situation is not a simple bear market, but rather a "mid-term correction + shakeout" phase within a bull market cycle.
1. Short-Term Holder (STH) Capitalization: The Pain Is Nearing Its End
Losses: In the past 30 days, short-term holders (holding for <155 days) have incurred losses exceeding $4.5 billion, second only to the $5.2 billion loss during the yen carry trade crash in August 2024 (Glassnode data). This indicates that leveraged traders and retail investors who chased high prices have largely surrendered.
SOPR indicator: The short-term holder SOPR (Spent Output Profit Ratio) has been below 1 (average selling loss) for more than 3 weeks. Historically, after such deep capitalization, BTC often sees a temporary bottom within 1-3 months.
2. Exchange Reserves and Withdrawals: The Trend of Financial Disintermediation Strengthens
BTC Balance on Exchanges: Over the past 30 days, the total BTC reserves on exchanges across the network have decreased by approximately 120,000 coins (about 2.5%), falling below 2.6 million coins (CryptoQuant), the lowest level since 2018.
ETH exchange reserves: decreased by approximately 1.2 million ETH during the same period, with withdrawal speed reaching a new high since 2025, reflecting strong demand for staking and self-custody.
Stablecoin reserves: Although the USDT/USDC balance on exchanges has declined seasonally, the number of active on-chain addresses and transaction volume remains stable, indicating that funds have not left the market but have instead been moved to cold storage to await re-entry.
Funds flowing out of the exchange usually indicate a price bottom, reducing selling pressure and building momentum for a subsequent rebound.
3. Medium- to long-term indicators: Abundant bottoming signals
MVRV Z-Score: Currently at 1.1, entering the historical "green buy zone".
RHODL Ratio: It has fallen to the level of the 2022 bear market bottom, indicating that market enthusiasm has completely cooled down.
Puell Multiple: The miner revenue metric has fallen to 0.6, a historical low that is often accompanied by a price reversal after mining capitulation.
Active addresses and transaction volume: Although sluggish in the short term, the 30-day moving average did not experience a precipitous drop, unlike the "activity exhaustion" at the peak of the bull market in 2021.
Configuration strategy: Finding certainty amidst uncertainty
The market is at a rare crossroads:
Short-term sentiment is extremely fearful (Fear & Greed Index 25), but on-chain data shows a dense pattern of bottoming characteristics, reminiscent of the historical "Christmas low – Lunar New Year rebound" pattern, providing seasonal support. This pattern has been successfully validated three times in the past five years, indicating an impending shift in liquidity (QT ending, RMP launching). However, in the short term, institutionalization is still being suppressed by hawkish guidance, accelerating the market's transformation from "speculative-driven" to "allocation-driven."
For investors seeking long-term value, the current environment offers a relatively clear risk-reward framework: deep capitalization by short-term holders, accelerated outflows of exchange reserves, continued accumulation by long-term holders, and valuation metrics such as MVRV and RHODL entering historical buy zones—signs that have historically signaled the opening of a medium- to long-term allocation window. For traders focused on liquidity management, the liquidity crunch in December presents both risks and opportunities. Maintaining sufficient flexibility, conserving ammunition during market panics, and capitalizing on the Spring Festival effect may be wiser than chasing short-term fluctuations.
The information in this report was compiled and edited by WolfDAO. Please contact us if you have any questions for updates.
