Bitcoin's Transition to a Bear Market: On-Chain Signals and Downside Scenarios

Bitcoin's market dynamics in late 2025 have shifted decisively toward bearish territory, driven by a confluence of demand-side exhaustion and institutional withdrawal. On-chain metrics, institutional outflows, and historical parallels all point to a structural transition from bull to bear market conditions. This analysis unpacks the evidence, explores potential downside scenarios, and contextualizes the broader implications for investors.

Demand-Driven Exhaustion and Institutional Retreat

Bitcoin's demand growth has slowed sharply since early October 2025, marking the end of a three-year bull cycle fueled by the U.S. spot ETF launch, the post-election optimism, and the Bitcoin Treasury Companies bubble. According to CryptoQuant, this decline has pushed Bitcoin below its 365-day moving average-a critical threshold historically associated with bear markets. The weakening demand is further underscored by the 24,000 BTC reduction in U.S. spot ETF holdings in Q4 2025, as large investors and institutions scale back exposure.

Institutional activity has also turned bearish. Addresses holding 100–1,000 BTC-often linked to ETFs and corporate treasuries-are growing below historical trends, signaling reduced accumulation. Meanwhile, derivatives markets reflect declining risk appetite: Bitcoin's funding rates have fallen to their lowest level since December 2023, indicating traders are less willing to maintain leveraged long positions. These signals align with patterns observed in late 2021, which preceded the 2022 bear market.

Historical Parallels and Macroeconomic Pressures

Bitcoin's current bear market bears a 98% correlation with its 2022 cycle, according to network economist Timothy Peterson. Both periods were driven by macroeconomic shocks-such as the 2025 U.S. tariff announcement on Chinese imports-and a lack of crypto-native failures, unlike 2022's Terra and FTX collapses. Historically, Bitcoin bear markets last an average of 9–14 months after a 70%+ drawdown. The 2025 cycle, which began after the October peak of $126,210, is still in its early stages.

The 2025 correction also mirrors the 2017–2018 bear market, which saw Bitcoin fall from $20,000 to $3,000 amid U.S. rate hikes and leveraged selling pressure. Today, the Federal Reserve's slower-than-anticipated rate cuts and high real yields have created a restrictive environment for high-beta assets like Bitcoin. This macro backdrop, combined with institutional outflows, has amplified downward pressure on the asset.

Downside Scenarios and Price Projections

Technical indicators suggest a bearish trajectory. Bitcoin's 50-day moving average crossing below the 200-day average-a "death cross"-has historically signaled prolonged declines. If the price closes below the 2-year SMA of $82,800 in December 2025, it could extend the decline to $73,300–$74,000, a 15% drop from current levels. A more severe scenario projects a 55% drawdown to $56,000, aligning with historical bear market losses of 70–85%.

Institutional outflows have already exacerbated declines. For example, November 2025 saw $3.6 billion in ETF outflows, coinciding with a 35% price drop from its October peak. BlackRock's IBIT alone recorded a $523 million single-day outflow, part of a $3.79 billion monthly exodus. These outflows, coupled with long-term holder selling (269,000 BTC in mid-December), highlight the fragility of Bitcoin's current price structure.

Path to Recovery: Institutional Resilience and Macro Catalysts

Despite the bearish outlook, some optimism persists for 2026. Institutional inflows into Bitcoin ETFs have shown early stabilization, with $220 billion in inflows during Thanksgiving week alone. Additionally, 94% of institutions believe in blockchain's long-term value, and 68% plan to invest in Bitcoin ETPs. If the Federal Reserve initiates rate cuts in early 2026, as 22.1% of investors currently expect, Bitcoin could regain momentum.

However, the path to recovery will depend on resolving macroeconomic uncertainties and rebuilding investor confidence. Unlike 2022, the 2025 bear market has demonstrated greater infrastructure resilience, with no major crypto-native failures to date. This suggests that while the correction is severe, the market's structural weaknesses may be less pronounced than in previous cycles.

Conclusion

Bitcoin's transition to a bear market in 2025 is a demand-driven phenomenon, marked by institutional withdrawal, deteriorating on-chain metrics, and macroeconomic headwinds. Historical parallels and technical indicators suggest a prolonged correction, with price targets ranging from $56,000 to $74,000. While the immediate outlook remains challenging, the interplay of regulatory clarity, institutional participation, and potential Fed rate cuts could lay the groundwork for a 2026 recovery. Investors must remain vigilant, balancing risk management with an eye on macro catalysts that could reshape Bitcoin's trajectory.