Bitcoin on a Tightrope as 2025 draws to a close

Looking ahead, several key factors will shape bitcoin's trajectory through the remainder of December and into 2026. The path forward is uncertain, with the market caught between constructive supply dynamics and challenging near-term conditions.

1. Macro Liquidity and Fed Policy: Federal Reserve policy decisions, real interest rates, and dollar dynamics continue to serve as powerful tailwinds or headwinds.  At the conclusion of the Federal Reserve meeting on 10 December 2005, interest rates were cut 0.25% in line with expectations, while the economic forecast stats released are optimistic, suggesting limited appetite for policy changes.  Projections show unemployment and inflation moving in the right direction (down!) and GDP growth is expected to accelerate. 

2. ETF Flows as a Critical Variable: The flow of capital through exchange-traded funds has emerged as perhaps the most critical near-term driver. After November's devastating $3.5 billion in net outflows - the second-heaviest month of redemptions since launch - late November saw tentative signs of stabilisation with approximately $70 million in net inflows. However, analysts caution that sustained multi-day inflows in the $200-$300 million range would be necessary to signal that institutional allocators are genuinely rotating back into Bitcoin. The setup remains fragile heading into December, a month that historically shows mixed performance for Bitcoin. It is interesting to note that on-chain data for the ETFs seems to mimic that of the broader market, suggesting that the ETF flows are still majority retail.

3. Supply Dynamics Post-Halving: Bitcoin's long-term issuance schedule, following the 2024 halving that reduced new supply to approximately 450 Bitcoin per day, continues to tighten available inventory. This creates powerful supply-side dynamics where even modest positive ETF flows can have outsized price impact.

4. Corporate and Sovereign Adoption: The structural growth in corporate and sovereign adoption represents a fundamental shift in Bitcoin's addressable market. Notably, Bank of America has reportedly allowed more than 15,000 wealth advisers to recommend Bitcoin ETFs, potentially unlocking hundreds of billions of dollars of new demand over time as the market stabilises.

What On-Chain Data Suggests

The beauty of Bitcoin is that analysts have a second lens into the dynamics of the market through on-chain analysis, i.e. using Bitcoin’s blockchain to track the movement of the coins themselves and derive insights, in addition to typical pricing analysis. 

At Monochrome, we often reference on-chain data sets at (VIEW LINK).

The on-chain metrics we find most informative currently are the True Market Mean (TMM) and the Asset Value to Investor Value (AVIV) indicators.

The TMM is an on-chain metric for Bitcoin, primarily used to assess the average cost of buying Bitcoin for active market participants.

The AVIV ratio is a way to measure what proportion of the capital in Bitcoin is actually in motion (active capitalisation), compared to how much capital investors have invested in total (investor realised capitalisation). In simple terms, it allows us to quantify how ‘overheated’ the market is.

At the crux of this recent downside movement, we observe the TMM around USD $82,000, while also showing signs of a neutral market sentiment/profitability via the AVIV. 

The question that is being asked by investors and analysts alike is “are we in a bear market?”

This question can never be fully answered, unless in hindsight. What we observe is that on-chain metrics do point to a previously overheated market, which is now cooling off, alongside the majority of recently purchased volume now being in a net unprofitable position.