Exploring Bitcoin's Prospects: What Will Signal a Reversal in a Quiet Market?

Most of Bitcoin's risks have been priced in, but there is a lack of clear catalysts for an upward movement.

Written by: WClemente

Compiled by: Luffy, Foresight News

Last year, my personal market research focus gradually shifted towards commodities. A very clear reality at that time was that the cryptocurrency market was oversupplied, and price performance was weak; meanwhile, apart from a few sectors like Hyperliquid, there was a lack of industry innovation, making the crypto space less attractive compared to other markets, which led to a demand-side challenge in absorbing massive supply. In the second half of last year, small-cap coins surged, and gold also experienced a strong rally. I initially thought Bitcoin would see a good market, but the final outcome was disappointing. In the days leading up to October 10, Bitcoin's upward breakout was declared a failure. In January of this year, I further reduced my Bitcoin holdings, as the market characteristics were strikingly similar to the bear market of 2022.

To be honest, this year has not been easy for those focused on Bitcoin and the overall cryptocurrency market. Although the recent decline in Bitcoin has been milder compared to previous downturns, this bear market has been even more difficult in many respects than that of 2022. At least in 2022, the reasons for the decline were clear: rising interest rates, market leverage clearing, and the FTX collapse. At that time, the market could reach a consensus: if these external conditions changed, the market had already reached a point where it was difficult to worsen further, and Bitcoin was likely to be a good long-term buying point.

In contrast, there is no such clear reversal logic today. Of course, the two variables of crypto asset treasury companies (DATs) and quantum computing risks will be discussed later, and in my view, some risks have already shown signs of easing. Bitcoin ETF management has reached $50 billion, setting a record for capital inflows, but earlier this year, this record was surpassed by memory chip ETFs. Large traditional institutions have also begun to launch crypto lending products. Last year, driven by the demand for reserve allocation from central banks and the narrative of 'de-dollarization', gold had a remarkable performance, which should have been a window for Bitcoin to shine. Now, almost all individuals and institutions interested in Bitcoin have entry channels, but the reality is disappointing: over the past year, Bitcoin ETFs have seen a net outflow of $5 billion, while DRAM-related ETFs achieved $10 billion in inflows in just one month.

Network Fundamentals

When discussing Bitcoin's fundamentals, we do not use traditional financial valuation metrics but rather observe the operational state of the network itself. I will not pile up all the data but will focus on two core points. In today's world, economies and markets are increasingly influenced by state power, and large tech companies bring highly centralized technological power. In this environment, decentralization itself has unique value.

Readers unfamiliar with Bitcoin's underlying mechanisms need to distinguish between miners and nodes. Miners are well-known; nodes can be set up by anyone and are responsible for executing network rules and validating transactions; miners provide security for the network through large-scale computational power. Bitcoin nodes are distributed globally, and many nodes are difficult to trace, with publicly available statistics covering nearly 200 countries.

Data source: https://bitref.com/nodes/

We can observe mining pool data, but mining pools cannot control individual miners, making it very difficult to track each miner. However, we can measure the scale of computational power supporting the entire network through hash rate. Objectively speaking, Bitcoin's hash rate has entered a downward channel.

After 2022, industry competition intensified, and energy costs rose, squeezing miners' profit margins; more critically, many publicly listed mining companies have shifted towards AI businesses, which has proven to be a wise choice for these companies. Bitcoin has underperformed AI assets, and the demand for computational power has changed, further exacerbating this trend.

This situation can be interpreted from both positive and negative perspectives.

Negative perspective: From the perspective of computational power security, the security of the Bitcoin network has declined; as a digital commodity, the energy input and production costs corresponding to each token have also decreased. It is worth noting that Bitcoin has a difficulty adjustment mechanism: the system automatically adjusts mining rewards based on hash rate every two weeks. When computational power declines, it incentivizes new miners to enter and maintain the network, preventing the network from collapsing.

Positive perspective: Although almost all publicly listed miners are investing in AI, the overall hash rate has only fallen back to last year's mid-level. This indicates that there are still many entities with access to cheap energy continuing to mine. Combined with the global distribution data of nodes, it is enough to prove that the Bitcoin network still possesses good distributed characteristics and is operating healthily.

In summary, the degree of decentralization and health of the Bitcoin network has not diminished compared to the past.

Valuation System and Current Market Signals

Bitcoin itself does not generate cash flow, but there are several unique valuation methods that can compare the current market situation with historical cycles.

From a technical perspective, Bitcoin is currently oscillating near the historical high of 2021, with prices slightly below the 200-week exponential moving average; the weekly RSI indicator has emerged from the oversold range, forming a bullish divergence. The last time such an oversold state occurred was at the bottom of the previous bear market. Historically, the 200-week moving average is an important reference point; reaching this range can prompt consideration for accumulating spot Bitcoin.

In on-chain data valuation models, the realized market value to realized value (MVRV) ratio is the most effective indicator. This indicator compares Bitcoin's current market transaction price with the comprehensive holding cost of all tokens on the network, with the holding cost based on the wallet clusters where the tokens last transferred.

When this indicator's value rises, it indicates that the market transaction price is far above the average holding cost across the network, and a large amount of unrealized gains will generate a motivation for profit-taking in the market. When the indicator falls below 0, it indicates that the market is overall in a state of loss. Based on historical experience, this is a suitable range for accumulation.

It can be observed that in the 2024-2025 cycle, this indicator has not shown the extreme euphoria seen at the peaks of past bull markets. This reflects that the asset is maturing, and volatility is narrowing. Each bull market's peak is gradually lowering, while the readings at the bottom of bear markets are slightly rising. Based on this pattern, this round does not necessarily require the MVRV to drop into negative territory for the market to find a bottom. It is almost impossible to accurately time the bottom; the core conclusion is that Bitcoin is already at the lower end of its historical valuation range.

From on-chain data observation, long-term holders began large-scale accumulation after completing a round of selling in mid-2025, indicating that long-term investors see value at the current price level.

Spot market trading volume has shrunk dramatically. A chart published by @n3ocortex shows that the turnover rate of Bitcoin spot trading relative to market capitalization has dropped to a historical low. The trading volume of ETFs and DAT products is also sluggish.

The short-term implied volatility in the options market has reached a multi-year low, and market pricing reflects a view that Bitcoin has become a 'dead asset' with no market activity. Meanwhile, the options skew indicates that for the entire past year, the market has been continuously buying put protection to guard against price declines.

From the derivatives perspective, there is another signal: the Bitcoin futures basis (the price difference between long-term futures contracts and spot prices) has been declining for years, even struggling to catch up with short-term U.S. Treasury yields. This phenomenon indicates two points: first, a large amount of capital is participating in futures basis arbitrage; second, the market has not given long-term futures contracts a clear premium over spot prices.

In summary, the market is nearly stagnant. There are no bullish expectations from traders in the futures and options markets, and the pricing indicates that Bitcoin's volatility will continue to remain low. However, the contradiction lies in the fact that multiple valuation indicators show that Bitcoin has entered a deeply undervalued range, and long-term holders are continuously accumulating; meanwhile, over the past 52 weeks, Bitcoin ETFs recorded a net outflow of $5 billion, contrasting sharply with the behavior of traders and long-term holders.

Potential Threats from Crypto Asset Treasury Companies (DATs) and Quantum Computing

The biggest risk in this bull market cycle from 2023 to 2025 comes from crypto asset treasury companies (DATs). The design logic of these products theoretically involves diluting the equity of ordinary shareholders to raise funds to continuously buy Bitcoin, thereby enhancing shareholder value. However, after the success of Strategy and Japan's Metaplanet, more participants entered the field, leading to a significant diversion of funds and directly compressing the premium relative to the product's net assets.

In recent months, multiple news reports have shown that several treasury companies are slowing down their Bitcoin buying pace, with some institutions directly selling Bitcoin, and a few entities even completely adjusting their business strategies. In my view, this is a positive signal of market self-correction. Recently, an interesting phenomenon has emerged: when Saylor announced that Strategy was selling Bitcoin, the price of Bitcoin actually rose; corresponding to the company's latest earnings call, Strategy is optimizing its capital structure and shifting its focus to STRC. This is completely opposite to the past pattern of 'announcing purchases leading to price increases, and selling leading to price declines'. Looking ahead, the selling pressure from DATs on the market is no longer as prominent as it was 6-9 months ago, especially since the current price has dropped over 50% from its peak.

The risk of quantum computing, in my opinion, is a real concern that should not be underestimated over a time frame of more than five years. In the past few months, I have participated in investment analysis work at STIX, engaging with many early-stage startups and industry professionals, gaining some understanding of quantum computing, but I am by no means an expert in the field. My view is that this risk should be taken seriously. However, with Bitcoin's price around $60,000, having halved from its peak and underperforming many other assets, this risk has largely been priced into the current price.

Even in the face of extreme disaster scenarios, the market has openly discussed quantum risks sufficiently, and future risks will only marginally ease. The more Bitcoin underperforms other assets due to quantum risks, the more motivation large holding institutions and companies that profit from Bitcoin trading, custody, and lending will have to fund developers and push the industry to come up with solutions. Just like the previous round of ETF launches, the market will anticipate the possibility of these risks being resolved, and by the time the risks are fully alleviated, it will be very difficult for investors to obtain extremely low entry prices.

Potential Bull Market Logic

Even if one agrees that Bitcoin has reached a good long-term accumulation position, from the perspective of medium to short-term asset allocation, investing in Bitcoin will face extremely high opportunity costs. Over the past few months, everyone has been asking a core question: this year, while gold has strengthened and high-beta equity assets have performed well, why has Bitcoin failed to rise in tandem? What conditions are needed for Bitcoin to break out independently?

The data mentioned earlier has shown that on-chain data indicates long-term holders are buying aggressively; the selling pressure from DATs is clearing, but ETFs are still experiencing significant net outflows. Historically, the end of Bitcoin bear markets often occurs when the selling power is completely exhausted, rather than the emergence of a strong new demand catalyst.

From the perspective of a multi-month cycle, setting aside the one-time crash risks brought by macro and geopolitical factors: the risks from DATs, quantum risks, and the pessimistic expectations of underperforming the market have already fully fermented. Who else can continue to sell on a large scale, with selling pressure exceeding the levels of the past 6-9 months? Admittedly, there are no very clear positive catalysts; the CLARITY Act may bring some changes, but I do not believe it will provide a decisive push for Bitcoin. The characteristics of bear market bottoms are often just like this. Investors need to weigh whether the probability of future market deterioration has already been fully priced into the current price; this is in stark contrast to the bullish expectations during a bull market.

I do not rule out the possibility of one last drop this year, but overall, most risks have already been priced into the market over the past year.

One potential driver comes from the continued passive buying by large institutions. The ETF's initial explosive growth has faded since last October, with total management scale continuously declining. If large asset management institutions decide to allocate a small percentage of Bitcoin in their portfolios, it will bring in incremental funds that are insensitive to price changes. This may sound like wishful thinking, but over the past year, Bitcoin has had a low correlation with most assets, making it valuable for large managers seeking to diversify risk to allocate a small portion of Bitcoin in their portfolios.

Conclusion: How to Allocate Assets Going Forward

I believe Bitcoin is already in an 'undervalued' range, but there may still be a final drop this year. The overall health of the network fundamentals is good, and most risks have been priced into the market. Those looking to sell due to various risks have likely completed their sell-offs. It is almost impossible to accurately buy at the absolute bottom.

In my view, there are several allocation strategies:

• The first is to dollar-cost average into spot Bitcoin over the next few months, which is the simplest strategy.
• The second is to wait for the market to complete its final drop or to wait for clear signs of recovery and momentum before entering.
• The third is to make allocations directly now; the current implied volatility is low, and options can be used to hedge against future declines, avoiding being shaken out of positions.

I personally have not yet entered the market, but I will likely begin to allocate in some way soon. The four-year cycle sometimes makes one feel as if the world is a simulation program. However, the next few months will be worth closely monitoring for this orange token.