Bitcoin's Strategic Rebound and Macro Outlook Amid Rate-Cut Optimism

The interplay between central bank policy and Bitcoin's price dynamics has long been a focal point for investors. As 2025 draws to a close, the Federal Reserve's aggressive rate-cutting trajectory-lowering the benchmark rate to 3.5%–3.75% by December 2025-has failed to catalyze the expected surge in Bitcoin's performance. Despite accommodative monetary conditions, Bitcoin's price has languished near $92,000, a 30% drop from its October peak of $126,000 according to analysis. This divergence between macroeconomic expectations and on-chain reality raises critical questions about Bitcoin's role as an inflation hedge and its alignment with institutional investment strategies.

Short-Term Momentum: A Bearish Turn Amid Rate-Cut Optimism

Bitcoin's Q4 2025 performance has been defined by deteriorating momentum and bearish sentiment. On-chain metrics such as the Spent Output Profit Ratio (SOPR) and Short-Term Holder MVRV (MVRV-STH) signal capitulation among retail and short-term investors. Meanwhile, institutional Bitcoin ETFs, once a pillar of demand, have seen significant outflows. U.S. spot Bitcoin ETFs recorded $6.3 billion in net outflows in a single week, with BlackRock's IBIT shedding $6.1 billion alone . These outflows coincided with the Fed's October rate cut and subsequent policy pause, which introduced uncertainty into risk-on markets.

The correlation between Bitcoin and the S&P 500, now at 0.5, further underscores Bitcoin's shift toward high-beta asset behavior rather than a safe haven. This dynamic is exacerbated by ETF outflows and macroeconomic concerns, which have overshadowed the Fed's rate-cutting narrative. For instance, Bitcoin ETFs lost $582.4 million in a single day in December 2025, reflecting a broader reallocation of capital toward traditional assets like gold and equities.

The rise of registered investment vehicles has further democratized access. Global crypto ETPs attracted $87 billion in net inflows by early 2025, with U.S. spot Bitcoin ETFs alone amassing $46.7 billion year-to-date . Even during Q4 outflows, cumulative inflows since January 2024 reached $56.9 billion, highlighting structural demand . Institutions view Bitcoin not as a speculative play but as a hedge against fiat devaluation and a cornerstone for diversification .

Macroeconomic tailwinds also support Bitcoin's long-term appeal. Central bank rate cuts reduce the opportunity cost of holding non-yielding assets, while rising public debt and inflationary pressures amplify demand for alternative stores of value. Analysts project Bitcoin could reach $120,000–$170,000 in 2026, driven by ETF inflows, tightening supply, and regulatory progress.

The Fed's dovish stance in 2026-projecting a median policy rate of 3.25%–3.5%-could reignite risk-on sentiment, but Bitcoin's trajectory will hinge on balancing short-term volatility with long-term fundamentals. While ETF outflows and bearish on-chain data suggest a near-term trough, historical patterns indicate Bitcoin's current drawdown may be shallow, with potential support levels around $70,000.

Structural factors, however, remain bullish. The GENIUS Act in the U.S. and global regulatory harmonization are reducing barriers to adoption. Meanwhile, Bitcoin's utility in cross-border payments and tokenized assets is expanding its use cases beyond speculative trading . For institutions, Bitcoin's role as a macro liquidity proxy-tied to global fiscal stimulus and dollar weakness-positions it to benefit from ongoing liquidity expansions according to analysis.

Conclusion: Strategic Rebound or Cyclical Correction?

Bitcoin's Q4 2025 underperformance reflects a confluence of short-term headwinds, including ETF outflows and macroeconomic uncertainty. Yet, the asset's long-term institutional adoption and regulatory tailwinds suggest a strategic rebound is on the horizon. Investors must navigate this duality: short-term volatility may persist, but structural demand and macroeconomic dynamics point to a resilient asset class. As Raoul Pal notes, Bitcoin's price is ultimately a function of global liquidity, and 2026 could see a re-rating if institutional flows and policy accommodativeness align.

For now, the market is at a crossroads. Will Bitcoin's bearish momentum give way to a cyclical correction, or is this the prelude to a new bull phase? The answer lies in the interplay of policy, sentiment, and the enduring appeal of a decentralized store of value.