Bitcoin’s recent drawdown reinforces the idea that we are still locked in a cyclical dynamic, repeating every 4 years.
Despite the depth and speed of the drawdown, the sell-off has been remarkably orderly, looking at market statistics.
While drawdowns are always painful, the good thing is we have a reliable roadmap of what’s likely to occur next.
Bitcoin Cycles Rule the Roost
Bitcoin and broader crypto markets are in turmoil. After reaching all-time highs just a few months ago in October, prices have fallen roughly 50% from their peaks and are down more than 27% year-to-date. The central theme in our 2026 outlook, whether crypto markets follow cyclical or secular trends, now appears to be resolved. Bitcoin’s four-year cycle, which we called the “null hypothesis,” seems firmly in control. As we cautioned in our cycles narrative framework, claims that “this time is different” tend to emerge near every cycle peak, and once again, that pattern has held.
Against this backdrop, we examine several key market indicators and what they imply about where we currently stand in the cycle. Here’s the strange thing about the recent sell-off: although prices are down substantially, the sell-off has been relatively orderly. We haven’t seen dislocations in prices of stablecoins, big differences in perpetuals vs spot, geographical differences in price, exchange crashes, or inversion of regulated futures vs spot (the basis held steady). This is both good and bad. On the good side, things haven’t completely broken. On the other hand, most downturns end with a big cacophonous event, think the collapse of FTX, for example.
Market Measures
Liquidations Ramp, Well Below October Event Though
Liquidations accelerated rapidly as prices broke below key technical levels. The magnitude and velocity of forced selling resemble prior deleveraging events, reinforcing the role of derivatives-driven reflexivity rather than a gradual repricing of fundamentals. Data from Glass Node shows long futures liquidations of $427M, high but well below the $1B of BTC liquidations that were logged on the October 10th deleveraging event.
Futures Data Shows Shorting into the Correction
Here’s a strange one – futures open interest in bitcoin terms was UP on Thursday. One would’ve expected them to be down given the liquidations, but pairing it with perpetual swaps funding rates, a clearer picture emerges, one where traders were shorting into the fall in price. Open interest started to build around the $75K level and peaked at around $62K.
Flows
ETFs’ Bitcoin Holdings Continue to Fall
The spot ETF complex’s aggregate bitcoin holdings peaked in October and have been declining since. Since mid-January, spot ETFs have posted consistent outflows, so another round of outflows on Thursday was not surprising. That said, the magnitude was relatively modest given the scale of ETF trading volume and the sharp price moves. In total, the spot ETF complex saw just $434 million in outflows, small compared with the secondary-market trading activity that day. A key driver was IBIT.
IBIT recorded exceptionally high trading volume, with $10 billion in daily turnover, nearly five times its prior 20-day average. Because IBIT’s creation and redemption orders are typically submitted the night before, most of the flows tied to Thursday’s trading activity will be reflected in Friday’s data.
Stablecoin Outflows Have Stabilized
Unlike bitcoin ETFs, capital continued to enter the ecosystem through stablecoins following the October 10th liquidation event. While the liquidation briefly reversed inflows, capital quickly returned and persisted through the end of December. That momentum later began to roll over, signaling that some investors were cashing out and exiting. However, that trend appears to have paused about a week ago, with stablecoin supply stabilizing since then and remaining largely unaffected by the recent price decline.
One of our long-standing favorite cyclical indicators, Market Value to Realized Value (MVRV), which compares bitcoin’s current price to the average cost basis of all coins (based on their last movement), is approaching levels historically associated with cycle bottoms. We’re not quite there yet. In every prior cycle drawdown, including the COVID-induced “Black Thursday” event, MVRV fell below 1.0x before a floor formed. While that threshold hasn’t been reached yet, we’re getting close. At present, a 1.0x MVRV corresponds to a bitcoin price of approximately $55,326.
Drawdown Analysis: Severity and Timing Point to a Cyclical Decline
We believe the market is firmly in a cyclical drawdown consistent with bitcoin’s historical four-year cycle. Both the depth and duration of the decline support this view.
With bitcoin hitting $60,000 on Coinbase, the drawdown has reached 52.5% and has lasted for 122 days. This now ranks as the seventh-largest and seventh-longest drawdown in bitcoin’s history. Historically, drawdowns of this magnitude fall into two categories: “sharp and shallow” pullbacks that occur as temporary interruptions within a broader uptrend, and cyclical drawdowns that are deeper and more prolonged, typically exceeding 70%.
Given the timing, when a cyclical peak would normally be expected, we classify this move as a cyclical top, which we date to October 6, 2025, at a price of $126,296.
Framed this way, the implication is clear: if this follows the pattern of prior cyclical drawdowns, the process is likely far from complete. Relative to historical precedents, there is still meaningful downside ahead and a longer path before a durable bottom is established.
Prices Levels to Watch
We’ve been asked repeatedly over the past week about key price levels. The challenge is that bitcoin has already moved through every major area of technical support. The $60,000 level has held briefly as a psychological round-number support, largely because (a) U.S. markets, the incremental buyer this cycle, had closed, and (b) support and resistance often cluster around round levels where resting bids and offers accumulate.
From here, there are a few other reference points investors may consider. Bitcoin is currently in a short-term oversold condition, which helps explain the recent bounce. However, if this proves to be a full-fledged cyclical drawdown, further downside remains likely.
One key takeaway from the “Bitcoin Cycles” chart above is that each successive cyclical drawdown has been shallower than the last. While the ultimate depth is uncertain, a drawdown of roughly 70% appears reasonable based on historical progression.
Historically, the 200-week moving average served as a reliable cyclical floor until the last cycle, when that pattern broke. That drawdown also violated another long-standing rule: that bitcoin would not fall below the prior cycle’s high. We have already seen that occur this cycle, with bitcoin trading well below the previous peak of $69,000. Still, we think that knowing where the 200-week moving average is may prove to be useful to investors.
Another important level to watch is the 1.0x MVRV threshold. While this level will shift over time, we include it here based on where it stands today.
Second-Order Impacts
Whenever crypto prices decline this sharply, the effects extend well beyond the price itself. Second-order impacts begin to surface across technology, market structure, and business models. Systems are stressed, platforms operate closer to their limits, and edge cases emerge in both markets and infrastructure. Business practices that looked sound in rising markets are exposed under pressure. At the same time, the wealth effect reverses, reducing risk appetite and speculative activity across the ecosystem. Here are some second-order impacts we may see:
Miners & Network Hash Rate
Lower bitcoin prices compress miner margins, particularly for higher-cost operators. This increases the likelihood of treasury drawdowns and incremental selling of bitcoin balances to fund operations. Over time, inefficient miners are forced out, reducing the network hash rate.
DATs (Digital Asset Treasuries)
For corporate bitcoin holders, falling prices introduce balance-sheet stress and heightened scrutiny from investors. While high-conviction holders that are well capitalized are likely to maintain exposure, those that aren’t may be forced to reduce holdings, contributing to supply. With many trading below their NAV, that may invite activist or deep value investors.
Liquidity Thins Out
As leverage is unwound and risk tolerance falls, market makers reduce exposure and quote less depth. Bid-ask spreads widen, and smaller flows have an outsized impact on price, even as headline trading volumes may remain elevated.
Volatility Compresses
After the initial selloff, volatility often declines as positioning resets and speculative interest fades. Markets become quieter, directional conviction weakens, and price action becomes more range-bound, conditions that can persist for extended periods.
Service Providers
Exchanges, lenders, custodians, and infrastructure providers face declining volumes and fee pressure. Weaker business models are exposed, cost structures are tested, and consolidation risk rises as only the most resilient operators maintain scale. Lenders were the primary sources of systemic risk in the last cycle, as the downturn exposed poor risk management and unsound business practices. This cycle, those practices appear meaningfully improved.
DeFi
We remain broadly cautious on DeFi. The recycling of capital and leverage, along with tightly interlinked assets and liabilities, creates opaque market structures that can behave unpredictably under stress. We saw a glimpse of this on October 10th, when several DeFi protocols and platforms experienced issues. While it’s difficult to pinpoint what might break, this remains an area we are closely monitoring.
Final Thoughts
While drawdowns of this magnitude are always difficult to navigate, the constructive reality is that we have a well-worn framework for what comes next. History suggests the path forward is unlikely to be linear or painless, and this cycle will not unfold exactly like those before it. That said, positioning, leverage, sentiment, and on-chain metrics are increasingly moving into ranges that have historically resulted in cycle floors. The process is still incomplete, but the contours are familiar. In environments like this, patience, discipline, and an understanding of where we are in the cycle matter far more than trying to time every short-term move.
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