Crypto Market Shows Classic Bear Traits as Investor Sentiment Shifts

Bitcoin and Ethereum prices have fallen from recent highs, with spot ETFs experiencing record outflows in late 2025 and early 2026. The 365-day moving average of funding rates has hit its lowest level since December 2023, signaling growing caution among traders. Institutional demand has softened, with recent data showing mild weekly outflows from major ETFs.

Market conditions have shifted significantly amid broader economic uncertainties. The U.S. job market has weakened, and inflationary pressures remain elevated, leading investors to move money into safer assets like stocks and bonds according to market analysis. Bitcoin miners have also adapted to this environment, repurposing infrastructure for artificial intelligence hosting, which has proven more profitable than traditional mining based on industry reports.

Bitcoin's price has remained range-bound between $85,500 and $90,500 for nearly three weeks. On-chain data shows a stalemate between profit-taking and long-term accumulation. The Spent Output Profit Ratio (SOPR) hovers near neutral, indicating that most sellers are exiting at or near cost basis. This balance suggests a market in consolidation rather than panic selling.

Why Did This Happen?

The shift in investor sentiment reflects broader macroeconomic trends and the rise of artificial intelligence as an alternative investment opportunity. In 2025, AI became the dominant theme in both Wall Street and Silicon Valley, siphoning capital from crypto markets. Nvidia gained 39% in 2025, while bitcoin declined by 6% according to financial data.

Bitcoin miners are also pivoting business models to take advantage of the AI boom, repurposing cooling systems and power infrastructure for data center operations. This trend reflects the broader reality that hosting AI is now more profitable than mining bitcoin in many regions.

The market is also reacting to regulatory developments. The U.S. passed the Genius Act in mid-2025, creating a framework for stablecoins and encouraging banks to enter the crypto space. The Federal Reserve also removed restrictions on crypto activities, allowing banks to custody crypto assets for customers.

How Did Markets Respond?

ETF outflows highlight the shift in investor sentiment. In November and December 2025, U.S.-listed spot bitcoin ETFs saw $4.57 billion in redemptions, the largest on record since their 2024 launch. Ethereum-linked products also faced $2 billion in outflows during the same period according to market data.

Bitcoin's price action has remained range-bound, with institutional traders favoring range-trading strategies over trend-following. Analysts at XWIN Research Japan project BTC could remain between $80,000 and $140,000 for most of 2026.

Meanwhile, regulatory changes in the U.S. and U.K. are shaping the landscape. The FDIC proposed rules for stablecoins, and the UK's Financial Conduct Authority is set to publish final crypto regulations in 2026. These changes aim to bring crypto markets under the same regulatory umbrella as traditional financial services.

What Are Analysts Watching Next?

Tom Lee predicts a 10% to 15% pullback in early 2026 due to policy uncertainty around the Federal Reserve and White House. He also sees potential for a strong recovery in the second half of 2026 if policy support returns.

Investors are also watching how macroeconomic factors evolve. The Federal Reserve has injected liquidity into financial markets, including buying $40 billion in Treasury bills per month to ease funding stress. This move could help stabilize risk sentiment and support crypto markets in the short term.

Institutional traders are adapting strategies to the range-bound environment. Options strategies such as selling strangles and straddles are gaining favor as volatility remains contained. The key for the next major move will likely depend on an external catalyst—either a macroeconomic shift or a change in ETF inflow dynamics according to market analysis.