By the end of 2025, the crypto market is at a crucial juncture. Bitcoin (BTC) hovers around $90,000, the Fear & Greed Index has dropped to 25 (extreme fear), and the capitulation of short-term holders has reached its second-highest historical point, second only to the 2024 Japanese yen arbitrage crash bottom. The FOMC meeting on December 10 has concluded, and the Federal Reserve (Fed) has lowered interest rates by 25 basis points as the market expected, bringing the federal funds rate down to 3.50%-3.75%. However, the forward guidance has turned hawkish—only one rate cut is expected in 2026. This led to BTC briefly falling below the $90,000 mark, with the market responding tepidly, resulting in a "buy the expectation, sell the fact" pullback.
However, the Fed has also launched the 'Reserve Management Purchases' (RMP) plan, injecting $40 billion in short-term Treasury liquidity monthly, which is seen as a mild easing signal of 'non-QE' and may reshape market dynamics in 2026. In this 'year-end exam', is it 'holding assets for the holiday' to welcome a potential rebound, or 'locking in profits'? This article explores allocation strategies and looks forward to 2026 layouts based on FOMC impacts, on-chain data, institutional movements, and historical patterns.
FOMC decision interpretation.
Liquidity turning point under hawkish rate cuts: The FOMC meeting is the last monetary policy decision in 2025, with a 9:3 split in favor of rate cuts, but the 'dot plot' shows a slowdown in the rate cut path for 2026, with only one remaining 25 basis point space.
This reinforces the narrative of 'hawkish rate cuts': The Fed is concerned about inflation rebounding and a soft landing in the labor market, unwilling to excessively loosen in the short term. The market has priced in an 89% probability of rate cuts, leading to only slight fluctuations in BTC after the event, while ETH consolidated around $3,000.
The impact on crypto is dual:
Short-term pressure: Hawkish guidance exacerbates risk aversion, and BTC did not rebound to $94,000 as expected, instead triggering several billion dollars in leverage liquidations. Year-end liquidity is thin (with perpetual contract open interest down 40%-50% compared to October), combined with the Bank of Japan's (BOJ) decision, the market is prone to 'pump and dump'.
Long-term bullish: QT (Quantitative Tightening) will officially end on December 1, and the Fed's balance sheet is expected to begin recovering from $9 trillion to $6.5 trillion. The RMP plan is equivalent to 'invisible QE', expected to inject trillions of dollars in liquidity by 2026, driving a re-evaluation of risk assets. Historical data shows that liquidity turning points often trigger crypto rebounds (such as BTC surging after the Fed shifts in 2024). Additionally, explosive growth in global M2 money supply, a weakening DXY dollar index, and stimulus policies from China/EU will further tilt funds towards risk assets.
The FOMC has strengthened the 'macro-dominant' narrative, with crypto no longer driven solely by cycles but linked with stocks/AI assets. Short-term volatility intensifies, but liquidity injections pave the way for 2026.
The appointment of the new Federal Reserve Chair will also be a key variable for the liquidity environment in 2026. Jerome Powell's term as chair will officially end in May 2026 (with his board term lasting until January 2028). President Trump has indicated he will announce his successor's nomination in early 2026, with popular candidates focusing on 'two Kevins': National Economic Council Director Kevin Hassett (who advocates for more aggressive rate cuts) and former Fed governor Kevin Warsh (who recently visited the White House and emphasized consulting the president on rate views).
A more Trump-friendly chair with a preference for easing policies may strengthen the rate cut path for 2026 and accelerate liquidity injections, resonating with RMP plans, national Bitcoin reserves, and other policies, further boosting confidence in risk assets.
Institutional movement insight: 2026 layout - from 'defensive' to 'structural participation'
2025 is viewed as the 'year of crypto mainstreaming', with institutional entry no longer a peripheral experiment but a systemic transformation. According to a16z's (2025 Crypto Status Report), traditional financial institutions like Visa, BlackRock, Fidelity, and JPMorgan Chase have fully launched crypto products, while tech-native players like PayPal and Stripe are doubling down on payment infrastructure.
This marks a transition from a 'retail-dominated' to an 'institutionally dominated' paradigm: EY-Parthenon and Coinbase's joint survey shows that 83% of institutional investors plan to expand crypto allocations in 2025, with DeFi exposure expected to leap from 24% to 75%, focusing on derivatives, lending, and yield opportunities.
Institutional allocation trend: From single BTC allocation to multi-asset portfolios.
BTC remains core, but its proportion 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 into ETH, Altcoins, and emerging assets: Institutions are increasing their holdings in ETH (attractive staking yields), Solana (high TPS and institutional partnerships), stablecoins (payment infrastructure), and RWA (tokenization of real assets). Coinbase reports that 76% of institutions plan to invest in tokenized assets in 2026, focusing on tokenized Treasuries, private equity, and bonds, offering instant settlement and fractional ownership.
Pension funds and sovereign wealth funds are testing the waters: Although most are indirectly exposed (e.g., the Norwegian fund holds BTC through MicroStrategy), more direct allocations of 0.5-3% are expected by 2026 (through ETFs or tokenization tools). Reports from BlackRock and others indicate that sovereign funds and pension funds are viewing crypto as a long-term diversification hedge, with increasing allocation ratios.
Historical patterns: BTC's year-end 'Spring Festival effect'.
"Christmas low - Spring Festival rebound" model's driving force.
Western liquidity depletion: From December 20 to early January, European and American institutions enter holiday mode, with trading volumes plummeting. In a low liquidity environment, any selling pressure will amplify volatility, forming technical lows.
Asian capital inflow: Around the Spring Festival (from late January to mid-February), year-end bonuses and red envelopes are distributed in mainland China, Hong Kong, and Singapore, leading retail and high-net-worth individuals to increase their risk asset allocations. Historical data shows that in the two weeks before the lunar new year, BTC buying volume on Asian exchanges (like Binance and OKX) typically rises.
Institutions are rebalancing: January marks the start of the new fiscal year for institutions, with pension funds and hedge funds reassessing asset allocations. If BTC performs relatively resiliently in December (like only a 5-10% pullback in 2025), institutions are inclined to increase their positions in January to catch up with benchmark returns.
On-chain data: Dense emergence of bottom signals.
After the hawkish rate cut by the FOMC, the crypto market enters a typical 'year-end low liquidity' phase, with Bitcoin (BTC) fluctuating repeatedly in the $88,000-$92,000 range, and the Fear & Greed Index falling to 25 (extreme fear). On the surface, it appears to be a 'sell the fact' pullback. However, on-chain data reveals more structural signals: deep capitulation of short-term holders, continued accumulation by long-term holders, accelerated outflows from exchange reserves, and bottom characteristics in medium to long-term indicators. These data suggest that the current situation is not simply a bear market, but rather a 'mid-term adjustment + washout' phase within a bull market cycle.
1. Short-term holders (STH) Capitulation: Pain is nearing its end.
Realized loss scale: Over the past 30 days, short-term holders (holding for <155 days) have realized losses exceeding $4.5 billion, second only to the $5.2 billion during the yen carry trade collapse in August 2024 (Glassnode data). This indicates a massive surrender by leveraged players and chasing retail investors.
SOPR indicator: Short-term holders' SOPR (Spent Output Profit Ratio) has remained below 1 (average selling at a loss) for over 3 weeks. Historical data shows that such deep capitulation often leads to BTC finding a phase bottom within 1-3 months.
2. Exchange reserves and withdrawals: The trend of fund disintermediation is strengthening.
Exchange BTC balance: In the past 30 days, the total exchange BTC reserves decreased by about 120,000 coins (about 2.5%), falling below 2.6 million coins (CryptoQuant), the lowest since 2018.
ETH exchange reserves: During the same period, about 1.2 million ETH were withdrawn, with withdrawal rates reaching a new high for 2025, reflecting strong staking and self-custody demand.
Stablecoin reserves: Although exchange USDT/USDC balances have seasonal declines, on-chain active addresses and transaction volumes remain stable, indicating that funds have not exited but are shifting to cold storage awaiting re-entry.
Capital flowing out of exchanges usually signals price bottoms, reducing selling pressure while building momentum for subsequent rebounds.
3. Medium to long-term indicators: Bottom signals are dense.
MVRV Z-Score: Currently 1.1, entering the historical 'green buying zone'.
RHODL Ratio: Has dropped to the level of the 2022 bear market bottom, indicating that market enthusiasm has completely cooled.
Puell Multiple: Miner income indicator has fallen to 0.6, with historical lows often accompanied by price reversals following mining capitulation.
Active addresses and transaction volume: Although temporarily sluggish, the 30-day MA has not shown a cliff-like drop, which differs from the 'active exhaustion' seen at the bull market peak in 2021.
Allocation strategy: Seeking certainty in uncertainty.
The market is at a rare inflection point:
Short-term sentiment is extremely fearful (Fear & Greed Index 25), but on-chain data shows a dense emergence of bottom characteristics.
Historical 'Christmas low - Spring Festival rebound' patterns provide seasonal support, with three successful validations over the past five years.
Macroeconomic liquidity is about to shift (QT ends, RMP starts), but in the short term, it is still suppressed by hawkish guidance.
The institutionalization process accelerates, with market structure transforming from 'speculation-driven' to 'allocation-driven'.
For long-term value-seeking investors, the current environment provides a relatively clear risk-return framework: deep capitulation of short-term holders, accelerated outflows from exchange reserves, continued accumulation by long-term holders, and valuation indicators like MVRV and RHODL entering historical buying zones - these signals have historically marked the opening of medium to long-term allocation windows. For traders focused on liquidity management, the liquidity drought in December presents both risks and opportunities. Maintaining enough flexibility to hold firepower during market panic and to act accordingly when the Spring Festival effect validates could be wiser than chasing short-term volatility.
This report's data is edited and compiled by WolfDAO; please contact us for updates if you have any questions;
Writer: Nikka / WolfDAO( X : @10xWolfdao )
