First, capital flows remain unfavorable. Since October, large Bitcoin holders have sold around USD 29 trillion, which is in line with historical patterns in the middle of the Halving cycle, where the distribution phase typically lasts six to nine months. Although smaller investors have accumulated, this has so far not been enough to fully absorb the selling pressure. At the same time, institutional inflows into digital asset ETPs remain subdued, with outflows of USD 440 billion recorded since the beginning of the year.
Secondly #bitcoin increasingly decoupled from the growth of the global M2 money supply - a relationship that has historically been close. Either investors have fundamentally misjudged this relationship or global liquidity is on the verge of a significant contraction. Given the current monetary conditions, the latter seems unlikely, suggesting that Bitcoin is undervalued relative to the prevailing monetary conditions.
Geopolitical risks also play a role. Bitcoin's hybrid identity as a risk asset and store of value tends to have a negative impact in periods of acute geopolitical tensions. Rising oil prices and increasing tensions in the Middle East, including maritime troop deployments towards Iran, have dampened general risk sentiment and favored traditional safe havens such as gold.
Political dynamics in the US are also limiting short-term catalysts. The Trump administration's aggressive stance towards the Federal Reserve has limited its own influence; legal action against incumbent central bankers is unlikely to be successful and the scope to reshape the power structure within the Fed is limited. Accordingly, a significant, politically driven boost for Bitcoin seems unlikely before mid-2026.
Looking ahead, we expect a volatile, sideways market environment with limited upside potential above USD 100,000 over the next three to six months. However, the medium-term outlook remains constructive. Monetary conditions remain loose, concerns over currency devaluation persist, selling by major market participants is likely to come to an end by mid-2026 and historical liquidity relationships suggest significant catch-up potential.
Paradoxically, this could make Bitcoin the most compelling devaluation trade at present. Precious metals have already largely priced in the change in monetary policy, whereas Bitcoin has not. For patient investors, this discrepancy could be more of an opportunity than a risk. (Author: James Butterfill, CoinShares' Head of Research)
