Grayscale says Bitcoin bear market hinges on Fed policy path

Bitcoin traded near $65,000 on July 24, up 13% from its June low near $58,000, as Grayscale Research published a report tying the bear market's duration to Federal Reserve policy.

"If the US economy remains resilient and the Fed avoids further rate increases, Bitcoin's price may already have bottomed," Zach Pandl, head of research at Grayscale, said in the report published July 24.

Under the traditional four-year cycle framework, Bitcoin has historically reached a market bottom about one year after its prior peak, or roughly two and a half years after a halving. Average peak-to-trough declines in prior bear markets have been about 80%, Grayscale said, suggesting the current downturn could continue until September or October if that pattern repeats.

The distinction matters for the roughly $400 billion in unrealized losses still embedded in Bitcoin's on-chain supply, according to Glassnode data. A recovery driven by macro conditions would validate the current price as a floor, while a cycle-driven bottom would imply further downside before a lasting recovery begins.

On-Chain Data Shows Prolonged Pain but Early Recovery Signals

Unrealized profit on the Bitcoin network collapsed from roughly $1.4 trillion at the October 2025 peak to about $400 billion by late June, the lowest reading of the cycle, Glassnode data shows. Net unrealized profit and loss bottomed lower in June than during the February crash, even though prices were similar both times, indicating coins changed hands during the drawdown and lifted the market's aggregate cost basis.

Unrealized losses held between $200 billion and $300 billion for most of 2026, compared with near zero throughout 2025. Such prolonged pain historically resembles late-stage capitulation, Glassnode said. July brought some relief, with unrealized profit recovering to roughly $500 billion as losses narrowed, but the metric must expand beyond its spring high near $580 billion for the signal to turn bullish.

Futures Demand Returns, but Spot Buyers Remain Absent

The recovery in holder profitability comes with a structural weakness. CryptoQuant data shows futures demand flipped back to net positive in July, growing by roughly 30,000 to 50,000 Bitcoin in the 30-day sum of perpetual futures demand. That compares with the April expansion that neared 250,000 Bitcoin and fueled the rally to $82,000.

Spot demand tells a different story. The metric has remained negative all year and is now contracting by about 200,000 Bitcoin per month. Total demand collapsed to nearly minus 550,000 Bitcoin in early June, the worst reading of 2026. Bounces built on leverage without spot absorption have historically proven fragile, according to CryptoQuant.

Key Levels and the Fed's Next Move

Bitcoin trades below three of the four major on-chain valuation models. Only the realized price at $52,900 remains as support beneath the market. The short-term holder cost basis sits at $69,500, about 6% above the current price — reclaiming it would return most recent buyers to profit, a shift that has historically marked the start of recovery phases.

The Federal Reserve's next rate decision could accelerate the move in either direction. A reclaim of $69,500 could open the path to the $76,200 true market mean, while rejection risks another test of $58,000. Losing the $52,900 realized price would signal a deep bear market instead, with one projection already pointing to a potential fourth-quarter bottom near $44,000.

Bitwise CIO Matt Hougan said in a July 23 investment memo that crypto was finally showing signs of a bottom, noting Bitcoin had gained about 9% since the beginning of July while the Nasdaq-100 fell roughly 6% over the same period. He predicted the next bull market could be the industry's biggest yet, driven by the growing integration of crypto and traditional finance through stablecoins, tokenized assets and institutional decentralized finance.

This article is for informational purposes only and does not constitute investment advice.