Bitcoin ETF Inflows Signal a Late Winter Rounding Bottom

The crypto market is in a prolonged bear phase, not a temporary dip. Bitcoin is down around 39% from its October 2025 all-time high, with ether falling roughly 53% and many altcoins dropping over 60%. This isn't a correction; it's a full-blown winter that began in earnest around January 2025, according to Bitwise CIO Matt Hougan. The label matters, as historical crypto winters of 2018 and 2022 showed that positive news fails to move prices when bearish sentiment is entrenched.

This winter is marked by weak capital flows and muted retail participation. While ETFs and digital asset treasuries provided a floor, buying more than 744,000 BTC worth roughly $75 billion, it was insufficient to halt the broader decline. The result is a "rounding bottom" where price action is choppy and sentiment is extreme. The Milk Road Crypto Fear & Greed Index reflects this, showing levels of fear typically seen in late-winter phases. This sentiment clash-fear despite a bitcoin-friendly Fed chair-signals the market is likely nearing the end of its downturn, not the start.

The setup now is one of exhaustion. After over 13 months of decline, the deepest losses have been taken. Hougan expects bitcoin to trade sideways between $75,000 and $100,000 in the first half of the year, a zone of high supply. The path forward requires digesting macro risks and waiting for regulatory clarity. For now, the flow of capital is pausing, a classic sign that the worst of the selling may be over.

The Rounding Bottom: Sideways Range and Catalysts

The immediate price action is defined by a stark divergence. While spot Bitcoin trades roughly 40% below its October 2025 all-time high, institutional demand via ETFs remains persistent. Last week, US spot Bitcoin ETFs recorded a $561.8 million net inflow, the largest since January. This flow highlights a key dynamic: ETFs hold about 1.3 million BTC, only 5% below their peak, while the spot price is underwater. The average ETF cost basis sits at $84,099, above the current spot price near $78,000. This creates a test of buyer conviction; should prices fall further, ETF holders could face losses, potentially triggering redemptions that add to bearish pressure.

This divergence is the fuel for the expected sideways range. Bitwise CIO Matt Hougan expects Bitcoin to trade in a choppy, sideways range between roughly $75,000 and $100,000 in the first half of 2026. This zone is one of high supply, with significant options positioning around $100,000. The setup is one of exhaustion, where the deepest losses have been taken, but momentum is absent. The market is pausing, digesting macro risks and waiting for catalysts to break the stalemate.

For a breakout, two specific shifts are needed. First, ETF inflows must sustain or accelerate, providing a continuous bid that can lift price above the average cost basis. Second, external catalysts are required to shift sentiment decisively. This could be improved regulatory clarity later in the year, which Hougan cites as a potential trigger for a new leg higher. Alternatively, a broader macro reassessment of digital assets as a store of value, perhaps reinforced by gold's rally, could funnel demand toward Bitcoin. Until then, the flow of capital is pausing, confirming the rounding bottom is still in formation.

Catalysts and Risks: What to Watch

The market's next move hinges on a shift in flow dynamics. The current setup is defensive, with ETFs providing a floor but not driving price higher. For a breakout above the $100,000 resistance zone, inflows need to evolve from institutional preservation into broader retail and corporate buying. This would signal a change in sentiment from holding to accumulation, creating the sustained bid required to lift price above the average ETF cost basis near $84,100.

High sensitivity to risk-off sentiment remains a key vulnerability. Recent market turbulence triggered a $2.56 billion cascade of crypto liquidations, demonstrating how quickly leverage can amplify losses when external pressures mount. This level of liquidation, while far below the record, shows the market's fragility. Any new shock to risk assets-whether from macroeconomic data or geopolitical news-could reignite this liquidation cycle and pressure prices back toward the lower end of the expected range.

The primary overhang is regulatory uncertainty. Bitwise CIO Matt Hougan has likened the pending CLARITY Act to Punxsutawney Phil, the groundhog whose shadow predicts winter's duration. This legislation is seen as a potential catalyst for a new leg higher, but its failure to pass could extend the current stagnation. Until clarity arrives, institutional capital may remain cautious, keeping the market in a holding pattern. The path forward requires digesting macro risks and waiting for this regulatory signal to break the stalemate.