Is Bitcoin in a Mid-Cycle Rally or a Bear Market Reset?

Bitcoin's price action in 2025 has been a rollercoaster, oscillating between euphoria and panic. The question now is whether the recent volatility signals a mid-cycle rally-a temporary rebound within a larger trend-or a bear market reset, where the asset is recalibrating to a new equilibrium. To answer this, we must dissect the interplay between macroeconomic forces and on-chain metrics, two lenses that often tell conflicting stories.

Macroeconomic Signals: A Tale of Contradictions

The Federal Reserve's shifting stance in 2025 has been a key driver of Bitcoin's trajectory. Initially, slower-than-expected rate cuts in early 2025 raised real yields, historically a headwind for Bitcoin, which behaves like a non-yielding asset. However, by Q4 2025, core U.S. inflation cooled to 2.6%, nearing the Fed's 2% target, creating a potential tailwind for risk assets. This cooling coincided with a 23% drop in Bitcoin's price, erasing gains from earlier in the year. The paradox here is that while lower inflation typically supports Bitcoin's appeal as a hedge, the market's reaction suggests lingering skepticism about its role in a post-inflationary world.

Institutional adoption, meanwhile, has been a bright spot. Over 86% of institutional investors now hold or plan to allocate to digital assets, and the approval of spot Bitcoin ETFs has provided a regulated on-ramp for capital inflows. Yet, these gains were partially offset by the October 2025 shutdown, which delayed critical economic data and Fed decisions, amplifying uncertainty. This regulatory and macroeconomic fog has made it harder to distinguish between cyclical noise and structural shifts.

On-Chain Metrics: A Bearish Undercurrent

While macroeconomic narratives are mixed, on-chain data paints a more bearish picture. Active Bitcoin addresses have plummeted to 660,000-the lowest in 12 months-indicating waning user engagement. This mirrors patterns from previous bear markets, such as 2018–2019, where declining activity preceded price declines. Miner revenue has also dropped 20% year-over-year, forcing miners to offload more BTC to cover operational costs. This creates a self-reinforcing cycle of selling pressure, further weighing on prices.

The Network Value to Transactions (NVT) ratio, a key valuation metric, suggests Bitcoin is overvalued relative to its transaction volume. While the NVT Golden Cross improved slightly from -0.58 to -0.32, it remains in a range historically associated with market corrections. Similarly, the Market Value to Realized Value (MVRV) ratio at 2.15 indicates many holders still hold unrealized gains, a precursor to profit-taking and distribution. The Net Unrealized Profit/Loss (NUPL) indicator now at 0.522 reflects a shift toward loss-making positions, signaling a market in distress.

The Great Divergence: Macro vs. On-Chain

The tension between macro and on-chain signals is stark. On one hand, macroeconomic conditions-cooling inflation, regulatory clarity, and institutional adoption-suggest Bitcoin could still rally as a long-term store of value. On the other, on-chain metrics like declining hash rates (down 4% in Q4 2025) and ETF outflows ($5.5 million in Q4 2025) point to a market losing momentum.

This divergence is not new. In 2021, similar contradictions emerged before the 2022 bear market. Then, as now, macroeconomic optimism (e.g., Fed easing) clashed with on-chain weakness (e.g., deteriorating demand). The key difference in 2025 is the maturation of the crypto ecosystem. Regulatory frameworks like the EU's MiCA and the U.S. GENIUS Act aim to stabilize the market, yet they also introduce friction for speculative flows.

Conclusion: A Bear Market Reset with Mid-Cycle Bounces

Bitcoin is likely in a bear market reset, but not a terminal one. The on-chain data-declining activity, overvalued NVT, and miner distress-strongly suggests a consolidation phase. However, macroeconomic catalysts like Fed easing and ETF inflows could fuel mid-cycle rallies, particularly if inflation remains subdued and institutional adoption accelerates. The critical question is whether these rallies will be broad-based or merely a reprieve before a deeper correction.

For investors, the path forward requires caution. While Bitcoin's long-term appeal as a hedge against monetary debasement remains intact, the immediate outlook is clouded by structural selling pressure and regulatory uncertainty. As the market navigates this inflection point, the interplay between macro and on-chain signals will remain the best guide to its true phase.