Bitcoin's Year-End Outlook: Navigating a Potential Red Candle and What 2026 Holds
Bitcoin is poised to close out the year with a potential red candle, a somewhat surprising outcome given the significant pro-crypto policy developments and institutional interest witnessed throughout 2025. Currently down 6.3% year-to-date and 8.25% year-over-year, Bitcoin needs a daily close above $93,389 on New Year’s Eve to avoid finishing the year in the negative. This analysis delves into the factors contributing to this late-year softness, examines the surprising resilience of Bitcoin ETFs, and explores Galaxy Digital’s outlook for 2026, including a bold prediction for 2027. We’ll unpack the on-chain data, market dynamics, and potential catalysts that could shape Bitcoin’s trajectory in the coming months.
A Softer Q4 and Unexpected Drawdown
The final quarter of 2025 has been characterized by subdued trading activity and a deeper drawdown than many bullish investors anticipated. Despite a consistent flow of positive news – including increased regulatory clarity and growing institutional adoption – Bitcoin traded as low as 36% below its October 6, 2025 all-time high of $125,296. This disconnect between positive headlines and price action has left some market participants questioning the prevailing narrative.
As Alex Thorn, Head of Research at Galaxy Digital, points out, “Despite the tepid finish, 2025 was a banner year for Bitcoin. Even Bitcoin’s staunchest supporters wouldn’t have believed some of 2025’s headlines just a few years ago… 2025 has been filled with dozens of positive headlines for Bitcoin that in the past would have sparked euphoria. Today, these victories feel like par for the course. Maybe we really are ‘tired of winning?’” This sentiment suggests a potential shift in market psychology, where positive developments are now largely priced in.
Mechanical Factors and Options Expiry
Thorn argues that some of the market’s stalled momentum is due to mechanical factors rather than fundamental concerns. A significant month-end options expiry is identified as a potential catalyst for breaking the current range-bound behavior between $85,000 and $90,000. Clearing outstanding dealer gamma could alleviate the pressure that has been keeping Bitcoin within this narrow trading range.
Furthermore, January could see portfolio managers reassessing their allocations to Bitcoin, potentially injecting fresh capital into the market. Thorn believes, “There are reasons why the quiet period we’ve seen for the last month will not persist in the near term.”
Headwinds to Spot Demand
Several headwinds have impacted spot demand and overall risk appetite. These include:
- Significant Whale Distribution: Large holders have been reducing their positions.
- October 10 Leverage Wipeout: A significant liquidation event impacted market sentiment.
- Competition from Macro Trades: Alternative investment opportunities, such as AI, hyperscalers, gold, and the “Mag 7” stocks, have attracted capital.
The Resilience of Bitcoin ETFs and the Source of Selling Pressure
A particularly noteworthy observation is the divergence between Bitcoin’s price drawdown and the performance of US Bitcoin ETFs. Despite Bitcoin’s significant decline from its highs, cumulative inflows into US Bitcoin ETFs are down only 9% from their October peak of $62 billion. Remarkably, approximately 60% of ETF inflows are currently underwater.
This resilience suggests that the selling pressure isn’t primarily originating from ETF investors. Thorn’s analysis points to a surprising source: “The call is coming from inside the house.” Since July 2025, coins held by long-term holders have declined more sharply than at any point since the 2017 bull run, indicating that older on-chain holders have been net sellers into the recent brokerage-led demand.
Constructive Distribution and Rising Aggregate Principal
While painful in the short term, this distribution is viewed as constructive for Bitcoin’s long-term maturity. It lifts the average cost basis and broadens ownership, making the network more resilient. Bitcoin’s realized market cap exceeding $1.1 trillion and a realized price above $56,000 serve as evidence of the network’s increasing aggregate principal.
Galaxy Digital’s 2026 and 2027 Outlook
In a December 21st post outlining Galaxy’s 2026 outlook, Thorn predicts Bitcoin will reach $250,000 by the end of 2027. However, he characterizes 2026 as “too chaotic to predict.” Options markets currently reflect significant uncertainty, pricing roughly equal odds of Bitcoin trading at $70,000 or $130,000 by end-June 2026, and $50,000 or $250,000 by year-end 2026.
Shifting Volatility and Skew
Thorn also notes a structural decline in longer-term volatility and a change in the volatility skew. The BTC vol smile now prices puts as more expensive than calls, a shift towards patterns more typical of macro assets than high-growth markets. This suggests a maturing market with a greater focus on downside protection.
For the near term, Thorn’s key marker is whether Bitcoin can “firmly re-establish” itself above the $100,000 - $105,000 level. Over the longer run, he argues that the bigger story is the demand for non-dollar hedges and the relatively small amount of incremental allocation needed to significantly move the market.
“We believe it is likely only a matter of time before ‘Bitcoin follows gold to become widely adopted as a monetary debasement hedge.’ It doesn’t take much to start a stampede in that direction – a few major allocators, central banks, or nation states might be all it takes to spark the fuse and light a fire.”
At the time of writing, BTC is trading at $87,748.
Bitcoin remains within the 0.618 and 0.786 Fibonacci retracement levels on the 1-week chart. Source: BTCUSDT on TradingView.com
Disclaimer: This article is for informational purposes only and should not be considered financial advice. Cryptocurrency investments are inherently risky, and you should always do your own research before making any investment decisions.