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Bitcoin Experiences Sharp Decline: Underlying Reasons and Potential Impact for 2026

Bitcoin Experiences Sharp Decline: Underlying Reasons and Potential Impact for 2026

Bitget-RWA2025/12/08 16:28
By:Bitget-RWA

- Bitcoin fell 32% below $90,000 in 2025, raising bear market fears driven by Fed policy shifts, regulatory uncertainty, and institutional exits. - Fed's 0.25% rate cut and delayed inflation data created volatility, while the GENIUS Act's reserve rules may reduce Bitcoin's appeal unless rates drop further. - SEC's Project Crypto and Senate bills increased regulatory clarity risks, while $3.79B ETF outflows triggered self-reinforcing price declines. - 2026 outcomes depend on Fed clarity, regulatory resoluti

Bitcoin’s Recent Decline: Unpacking the Forces Behind the Drop

Bitcoin has tumbled by 32% from its October 2025 high, slipping below the $90,000 mark. This sharp correction has reignited concerns about the onset of a new bear market. However, a closer look reveals that the downturn is the result of a complex mix of global economic shifts, evolving regulations, and shifting institutional strategies. The true impact for 2026 will depend on whether these influences lead to a prolonged downturn or simply represent a temporary market adjustment.

The Federal Reserve’s Influence: Balancing Growth and Uncertainty

In November 2025, the Federal Reserve reduced interest rates by 0.25% and paused its quantitative tightening program, injecting $72.35 billion into the financial system. This move initially fueled optimism in the cryptocurrency sector, with Solana jumping 3.01% and the total crypto market capitalization reaching $3.02 trillion. Yet, this positive momentum quickly faded. The release of delayed inflation figures and an extended government shutdown left policymakers without crucial data, resulting in unpredictable speculation about a possible rate cut in December. These uncertainties intensified Bitcoin’s price swings.

Bitcoin market volatility

Meanwhile, the GENIUS Act, which mandates that stablecoin reserves be held in U.S. dollar–backed assets, could indirectly impact Bitcoin. By increasing demand for government securities and other liquid assets, the law may influence the neutral interest rate (r*), potentially making riskier investments like Bitcoin less attractive unless rates decline further. While lower interest rates could reduce the cost of holding digital assets, the Federal Reserve’s mixed messaging has left investors uncertain about the future.

Regulatory Flux and Institutional Retreat

Regulatory changes in November 2025 further weighed on the market. The SEC’s “Project Crypto” initiative, designed to clarify how securities laws apply to digital assets, and a Senate Agriculture Committee proposal to place Bitcoin under the CFTC’s oversight, signaled a move toward more structured regulation. Although these efforts could eventually bring stability, they have so far heightened short-term uncertainty.

At the same time, major institutional players accelerated their withdrawal. U.S. spot Bitcoin ETFs experienced unprecedented outflows totaling $3.79 billion in November, with BlackRock’s IBIT fund alone seeing $2.2 billion in redemptions. According to Citi Research, every $1 billion withdrawn from ETFs is linked to a 3.4% drop in Bitcoin’s price, creating a feedback loop where falling prices prompt further exits. This trend was exacerbated by strong U.S. employment data and the Federal Reserve’s hawkish tone, which undermined confidence in speculative assets.

Market Mood: Heightened Anxiety and Instability

In November, the Fear and Greed Index plunged into “extreme fear” territory, reminiscent of the 2022 bear market. October saw $19 billion in liquidations and the sale of over 400,000 long-held “OG” Bitcoin coins, highlighting the fragility at the market’s peak. While Grayscale Research suggests that the current pullback is consistent with past bull market corrections, the combination of regulatory and economic headwinds has left many investors on edge.

Looking Ahead to 2026: What Will Shape Bitcoin’s Future?

  • Clearer Federal Reserve Policy: A decisive rate cut in December and consistent communication from the Fed could help restore investor confidence, especially if inflation data points to a cooling economy.
  • Regulatory Clarity: Finalizing the Senate’s market structure legislation and the SEC’s Project Crypto framework may ease uncertainty, though the risk of enforcement actions remains.
  • Return of Institutional Investors: If ETF outflows subside and the broader economic outlook improves, large investors could re-enter the market—particularly if Bitcoin stabilizes near the $80,000 level.

Despite the current bearish sentiment, Bitcoin has not yet experienced the kind of prolonged downturn—defined as a drop of over 50% from its peak—that would signal a true bear market. The cryptocurrency’s core strengths, such as its appeal as a hedge against inflation and currency debasement, remain intact. Nevertheless, unless regulatory and macroeconomic uncertainties are resolved, volatility is expected to continue into 2026.

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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