Bitcoin's Year-End Rally Prospects and Macro Drivers: Navigating U.S. Fiscal Policy and Market Sentiment

The final quarter of 2025 has been a rollercoaster for Bitcoin, shaped by a confluence of U.S. fiscal policy uncertainty, regulatory clarity, and shifting market sentiment. As the calendar ticks toward year-end, investors are left to parse whether Bitcoin can stage a meaningful rally or if structural headwinds will keep it range-bound. This analysis dissects the macroeconomic and regulatory forces at play, offering a roadmap for understanding BTC's trajectory ahead of Christmas.

U.S. Fiscal Policy: A Tale of Uncertainty and Tariffs

The U.S. government shutdown in late 2025 created a vacuum of economic data, delaying critical metrics like CPI and NFP reports. This forced the Federal Reserve into a reactive stance, leaving markets to speculate about policy direction. While the labor market showed resilience in sectors like leisure and hospitality, the unemployment rate edged up to 4.44%, signaling moderation. Meanwhile, tariffs remained a double-edged sword. Deloitte projected that these tariffs would push core PCE inflation to 3% in 2026, a figure that could test the Fed's patience as it balances growth and price stability.

The absence of real-time data meant Bitcoin became a proxy for liquidity gauges. According to Coingecko, BTC's price began aligning with the Global M2 liquidity index, reflecting capital flows in a data-starved environment. However, this alignment didn't translate into sustained bullish momentum, as the market grappled with the aftermath of a $19 billion liquidation event in October.

Regulatory Clarity: A Tailwind for Institutional Adoption

While fiscal policy created uncertainty, regulatory developments offered a counterbalance. The GENIUS Act, passed in July 2025, marked a watershed moment by establishing comprehensive market structure laws for digital assets, particularly stablecoins according to market analysis. This legislative clarity, coupled with SEC no-action letters for DePIN token distributions, reduced enforcement risks for blockchain projects. The Trump administration's executive order on digital financial technology further reinforced a pro-crypto stance, emphasizing innovation and clear regulatory frameworks.

These moves catalyzed institutional adoption. By year-end, 60% of institutional investors preferred Bitcoin exposure through registered vehicles like ETFs. Yet, despite this progress, Bitcoin's price ended 2025 down roughly 6%, underscoring the gap between regulatory optimism and market performance.

Bitcoin's Price Action: A Bearish Wedge and Liquidity Challenges

December 2025 painted a mixed picture for Bitcoin. After peaking at $126,000 in October, BTC plummeted nearly 30% by late November, stabilizing around $92,500. Technical indicators like RSI showed bearish divergence, hinting at weakening momentum. The market entered a rising wedge pattern, a classic precursor to a continuation of the downtrend.

Liquidity issues compounded the bearish narrative. ETF outflows in November totaled $3.5 billion, while aggregated 2% market depth fell by 30% from its peak. Glassnode data revealed thinning demand, with leveraged bets in perpetual futures driving short-term volatility without broad support. Even a brief bounce to $90,353 in late December was met with skepticism, as the "Coinbase premium" turned negative and U.S. spot ETFs recorded net outflows.

Market Sentiment: Fear, Institutional Caution, and Retail Divergence

Crypto fear and greed indices hovered near "extreme fear" for months, reflecting a risk-off environment. Institutional investors, however, remained active. Digital Asset Trusts (DATs) saw $2.23 billion in inflows during the week of December 15–21, driven by corporate treasury purchases. Yet, this buying didn't translate into broader strength, as Bitcoin repeatedly failed to break above $90,000.

Retail sentiment was equally divided. A Stocktwits poll showed 49% expecting BTC to end the year between $90,000 and $100,000, while 22% predicted a drop below $80,000. The disconnect between institutional accumulation and retail pessimism highlights the market's evolving maturity, with long-term portfolio integration now outweighing speculative fervor.

The Fed's Role: Rate Cuts and the Path to a Santa Rally

The Federal Reserve's December 10 rate cut, bringing the benchmark rate to 3.5%–3.75%, failed to ignite a rally. While the move signaled a dovish tilt, real yields remained restrictive at 1.9%, far above the negative rates of 2020–2021. Analysts like Gabriel Selby of CF Benchmark argue that Bitcoin's muted response to the cut exposed its identity as a high-beta asset rather than a traditional inflation hedge.

A clean January inflation report and a more aggressive Fed easing cycle could reignite institutional interest. However, until real yields fall significantly and fresh liquidity enters the system, Bitcoin's ability to break out of its range remains constrained. The Bank of Japan's rate hike in December further complicated the liquidity landscape, removing a global carry-trade anchor without triggering volatility.

Conclusion: A Cautious Outlook for Year-End

Bitcoin's year-end rally prospects hinge on two critical factors: regulatory clarity and Fed policy direction. While the U.S. has made strides in creating a pro-crypto environment, structural challenges like ETF outflows and thin liquidity persist. The Fed's upcoming decisions will be pivotal, with a dovish tone potentially pushing BTC toward $100,000, while hawkish signals could drive it below $85,000.

For now, Bitcoin remains in a holding pattern, with institutional adoption and DAT inflows offering a glimmer of hope. Retail traders, however, should brace for volatility as the market navigates the final stretch of 2025. Whether the "Santa rally" materializes will depend on whether macroeconomic clarity and liquidity injections can outweigh the headwinds of a risk-off environment.