Why Bitcoin and Ethereum's Post-Christmas Rally Failed to Gain Momentum

The post-Christmas 2025 period for Bitcoin and Ethereum was marked by a striking absence of momentum, with both assets failing to capitalize on seasonal optimism. Despite the structural tailwinds of spot ETF approvals and macroeconomic narratives, the market remained trapped in a narrow range, constrained by liquidity limitations and macroeconomic uncertainty. This analysis dissects the interplay of these factors, drawing on recent data and expert insights to explain the stagnation.

Liquidity Constraints: A Holiday-Induced Thinning

The immediate aftermath of the 2025 Christmas holiday saw Bitcoin and Ethereum trading in a tight range, with Bitcoin fluctuating between $85,000 and $90,000 and Ethereum hovering near $3,000. This sideways movement was exacerbated by holiday-thinned liquidity, a phenomenon where trading volumes and open interest decline sharply due to reduced institutional and retail participation. According to a KuCoin report, Bitcoin's open interest fell by approximately $3 billion, while Ethereum's dropped by $2 billion during this period.

Spot ETF outflows further underscored the liquidity crunch. Data from CoinMarketCap revealed that Bitcoin ETFs recorded $175 million in net outflows on December 24, with BlackRock's IBIT alone seeing $91.37 million in redemptions. Similarly, Ethereum ETFs lost $57 million, led by Grayscale's ETHE with $33.78 million in outflows. These movements were attributed to year-end risk-off positioning, tax-loss harvesting, and the natural dip in market depth during festive closures.

Derivatives markets also reflected caution. Futures open interest declined, and volatility spiked as thinner order books reduced leverage and amplified price swings. Traders, wary of extended market closures, booked profits and scaled back exposure, leaving the market vulnerable to sudden shifts in sentiment.

Macroeconomic Uncertainty: A Broader Headwind

Beyond liquidity, macroeconomic factors played a pivotal role in stifling the rally. The Federal Reserve's cautious approach to rate cuts, despite signs of economic slowdown, created a climate of uncertainty. As noted in a Beacon Pointe market update, internal disagreements among Fed officials clouded expectations for a December rate cut, leaving investors in limbo. This ambiguity was compounded by the unwinding of the yen carry trade, which redirected capital away from risk assets.

Inflationary pressures further dampened optimism. The core PCE price index rose by 3% in 2026, driven by elevated tariffs and trade policy disruptions, including the Liberation Day tariff announcements and a prolonged government shutdown. While moderating rents and energy prices prevented runaway inflation, the persistent above-2% inflation rate kept the Fed's easing cycle delayed, reducing the appeal of high-risk assets.

Investor sentiment, as captured by the Crypto Fear & Greed Index, reached "Extreme Fear" levels in early December 2025, reflecting widespread risk aversion according to market data. This psychological shift was fueled by Bitcoin's failure to sustain its October high of $126,000 and Ethereum's drop from $4,800 to $2,800. The divergence between crypto and traditional assets-where gold surged to $4,239/oz and the S&P 500 continued to rise-highlighted crypto's underperformance despite structural milestones.

The Interplay of Liquidity and Macro Factors

The combination of liquidity constraints and macroeconomic uncertainty created a self-reinforcing cycle. Thinner order books during the holiday session amplified the impact of ETF outflows, pushing Bitcoin below critical support levels at $88,000. At the same time, macroeconomic headwinds-such as delayed Fed easing and inflationary pressures-discouraged new capital inflows, leaving the market without the momentum needed to break out of its range.

Analysts suggest that the current drawdown may reflect strategic positioning by large players or a deeper market reset driven by macroeconomic headwinds according to market analysis. Recovery timelines are projected to extend into early 2026, with scenarios ranging from a gradual correction to a more abrupt reset.

Conclusion: A Path Forward

While the post-Christmas 2025 rally faltered, the underlying fundamentals of Bitcoin and Ethereum remain intact. The structural tailwinds of ETF approvals and macroeconomic normalization in 2026 could provide a catalyst for renewed bullish momentum. However, investors must remain cautious, as liquidity constraints and macroeconomic uncertainty are likely to persist in the near term. For now, the market appears to be in a consolidation phase, with a breakout above $90,000 for Bitcoin and $3,000 for Ethereum seen as critical for reversing the current bearish narrative.