Grayscale: Four-year cycle expires; BTC price expected to hit new high next year.

Source: Grayscale Research; Compiled by: Jinse Finance

Key Points of this Article:

• Bitcoin investors have enjoyed high returns, but have also experienced several severe pullbacks. The approximately 30% pullback since early October is in line with historical averages and is the ninth significant pullback in this bull market.

• Grayscale Research believes that Bitcoin is not currently in a deep and prolonged cyclical downtrend and expects its price to reach new highs next year.From a strategic perspective, some indicators point to a short-term bottom, while others remain unclear. Looking ahead to the end of the year, positive catalysts could include another interest rate cut by the Federal Reserve and bipartisan progress on cryptocurrency legislation. Beyond mainstream cryptocurrencies, privacy-related crypto assets continue to perform strongly. Meanwhile, the first exchange-traded products (ETPs) for Ripple (XRP) and Dogecoin have begun trading. Historically, investing in Bitcoin has typically yielded substantial returns, with annual returns of 35%-75% over the past 3-5 years. However, Bitcoin has also experienced several significant declines: its price typically falls at least three times a year, each time by at least 10%. Like all assets, Bitcoin's potential returns can be seen as compensation for its risks. Long-term Bitcoin holders have reaped substantial rewards, but they must also bear the potentially dramatic volatility along the way. The Bitcoin decline that began in early October lasted for most of November. From peak to trough, its price fell by 32% (see Chart 1). This brings the recent pullback to near its historical average. Since 2010, there have been approximately 50 instances of Bitcoin's price falling by at least 10%; these pullbacks averaged 30%. Since Bitcoin's price bottomed out in November 2022, there have been 9 instances of its price falling by at least 10%. Bitcoin's price has been volatile during this period, but it is not uncommon in a bull market.

  Chart 1: Recent Pullback in Line with Historical Average

  

  
  

  Bitcoin price pullbacks can be measured by their magnitude and duration. Data analysis shows that price pullbacks mainly fall into two categories (Chart 2).

  "Cyclical pullbacks" refer to deep and prolonged price declines lasting 2-3 years. Historically, these pullbacks occur approximately every four years. In contrast, "bull market pullbacks" average a 25% price drop and last 2-3 months. During bull markets, these pullbacks occur 3-5 times per year. Chart 2: Bitcoin Has Experienced Four Major Cyclical Declines [Image of chart 2: Chart ... First, unlike previous cycles, this bull market has not seen a parabolic price surge, which may indicate overvaluation (see Chart 3). Second, the market structure for Bitcoin has changed, with new funds primarily flowing into exchange-traded products (ETPs) and digital asset treasuries (DATs) rather than retail exchanges. Third, as we will discuss further below, the macroeconomic environment remains favorable for the crypto asset class. Chart 3: No Parabolic Price Increase Expected This Period [Image of chart 3: No Parabolic Price Increase Expected This Period] [Image of chart 4: No Parabolic Price Increase Expected This Period] [Image of chart 4: No Parabolic Price Increase Expected This Period] Furthermore, the largest digital asset treasury (DAT) companies are trading below their cryptocurrency value on their balance sheets (i.e., their “net market capitalization” is below 1.0), which may also indicate light speculative positioning (often a harbinger of recovery).

  Chart 4: Higher put skewness indicates hedging of downside risk

  

  Meanwhile, several fund flow indicators suggest continued weak demand: November futures open interest declined further, ETP fund flows remained negative until the latter part of the month, and there may be further selling of Bitcoin OG.

  Regarding the latter, on-chain data shows that "Token Burn Days" (CDD) surged again in late November (Chart 5). CDD is calculated by multiplying the number of tokens traded by the number of days since the last trade—therefore, CDD increases when a large amount of OG is traded simultaneously. Similar to the surge in CDD in July, the increase in CDD in late November may indicate that a long-term investor holding a large amount of Bitcoin is selling. In the short term, once these liquidity indicators—futures open interest, net ETP inflows, and OG selling—improve, investors can be more confident that Bitcoin has bottomed out. Chart 5: More Old Bitcoins Moved On-Chain

  

  Privacy First

  According to our cryptocurrency sector index series, Bitcoin's price decline in November was in the middle range for investable crypto assets. The best-performing market sector was the currency sector (Chart 6). Excluding Bitcoin, this sector saw even greater gains that month. The gains were primarily driven by several privacy-focused cryptocurrencies: Zcash (+8%), Monero (+30%), and Decred (+40%).

  The Ethereum ecosystem also places a strong emphasis on privacy: Vitalik Buterin released a privacy framework at Devcon, and Aztec, an Ethereum Layer 2 project focused on privacy, launched its Ignition Chain. As we stated in our previous monthly report, Grayscale Research believes that blockchain technology cannot reach its full potential without privacy elements. The worst-performing market sector was Artificial Intelligence (AI), which fell by 25%. Despite the weak price this month, there have been some significant positive developments in the fundamentals. Of particular note is Near, the second-largest AI company by market capitalization, whose Near Intents product (see Chart 7) is seeing rapid growth in usage. Near Intents abstracts away the complexity of cross-chain transactions by connecting the desired results to a network of solvers. These solvers compete to execute the optimal cross-chain path. This feature has already improved the usability of Zcash, allowing users to make private spending with ZEC while recipients can receive assets like Ethereum or USDC on other chains. While still in its early stages, we believe this integration will play a significant role in expanding privacy-preserving payments within the cryptocurrency space. Chart 7: Near Finding Product/Market Fit [Image of chart 7: Near Finding Product/Market Fit] Furthermore, developers have turned their attention to x402, a new open payment protocol developed by Coinbase that supports AI-driven stablecoin payments directly over the internet. This payment standard eliminates the need for account creation, manual approval steps, and payment processor fees, enabling frictionless, autonomous microtransactions executed by AI agents, with blockchain as the settlement layer. Recently, x402 has seen rapid adoption, with daily transaction volume increasing from less than 50,000 in mid-October to over 2 million by the end of November. Finally, the cryptocurrency ETP market continues to expand thanks to the new general listing standards approved by the U.S. Securities and Exchange Commission (SEC) in September. Issuers launched XRP and Dogecoin ETPs last month, and more single-token cryptocurrency ETPs are expected to be listed by the end of the year. Bloomberg data shows that there are currently 124 cryptocurrency ETPs listed in the U.S., with total assets under management reaching $145 billion. The Fed's interest rate cuts and bipartisan legislation make 2025 an exceptionally good year for the digital asset industry in many ways. Most importantly, the clearer regulatory environment has fueled a wave of institutional investment, which is likely to form the basis for continued growth in the coming years. However, valuations have not reflected the improvement in long-term fundamentals: our market capitalization-weighted cryptocurrency sector index has fallen 8% since the beginning of the year. Despite mixed performance in the cryptocurrency market in 2025, fundamentals and valuations will eventually converge, and we are optimistic about the cryptocurrency market's prospects for the end of the year and 2026. In the short term, the key swing factor may lie in whether the Federal Reserve will cut interest rates at its December 10 meeting and what guidance it will provide for policy rates next year. Recent media reports indicate that Kevin Hassett, director of the National Economic Council, is a leading candidate to succeed Jerome Powell as chairman of the Federal Reserve. Hassett is likely to support lower policy rates: in a September interview with CNBC, he stated that the Fed's 25-basis-point rate cut was a "good first step" toward "significant rate cuts." All else being equal, lower real interest rates should be viewed as a negative impact on the value of the dollar, but a positive for assets that compete with the dollar, including physical gold and certain cryptocurrencies (see Chart 8). Chart 8: All else being equal, a Fed rate cut could support Bitcoin. Another potential catalyst could be the ongoing bipartisan effort on cryptocurrency market structure legislation. The Senate Agriculture Committee (responsible for overseeing the Commodity Futures Trading Commission) released a bipartisan draft text in November. If cryptocurrencies maintain bipartisan consensus and do not become a partisan battleground in the midterm elections, market structure legislation could make further progress next year, potentially driving more institutional investment into the industry and ultimately boosting valuations. While we are optimistic about the short-term market outlook, the most meaningful gains may come from long-term holding (HODL).