Crypto Market Macro Research Report: AI Bubble, Interest Rate Repricing, and Cycle Switching

Abstract

At the end of 2025, the crypto market is in a deep oscillation period driven by heightened macroeconomic factors: Bitcoin is still in the high range of $90,000, but sentiment has plummeted to extreme fear levels not seen since the pandemic in 2020. Massive outflows from ETFs in one day, structural turnover among whales, and retail investors cutting losses have collectively created a typical “reallocation of chips” in the middle of a bull market. Meanwhile, expectations for U.S. interest rate cuts have been re-priced, and concerns about maintaining high interest rates have significantly compressed risk asset valuations. Although external macro liquidity has not worsened — with Japan, China, and Europe all shifting towards easing — the pace has become more reliant on singular data points, putting the market in a rare combination of “liquidity-friendly, cold sentiment.” The credit pressure from the AI bubble has also intensified cross-asset risk transmission, squeezing crypto assets in terms of funds, attention, and narrative. Against this backdrop, the crypto market is entering a structural phase of migration from weak hands to strong hands, laying the groundwork for the next cycle.

1. Macroeconomic Analysis of the Cryptocurrency Market

In the past few weeks of market turmoil, Bitcoin's price and sentiment have exhibited a rare and significant divergence: the price remains steadily above the historical high zone of $90,000, but market sentiment has plunged into the depths of “extreme fear.” The Fear and Greed Index once hit 16 points, marking the coldest sentiment reading since the global pandemic crash in March 2020; even though it has slightly recovered recently, it struggles only in the 12-18 range. The positive narrative about Bitcoin on social media has also dropped, quickly shifting from a previously strong optimism to complaints, anger, and blame-shifting. This dislocation is not coincidental; it often occurs in the later stages of a bull market: early entrants have already accumulated significant unrealized gains, and once macro factors show signs of distress, they choose to cash out; meanwhile, latecomers who chased the price higher get quickly trapped in short-term volatility, further amplifying the market's panic and disappointment. Bitcoin is currently around $92,000, nearly flat compared to the beginning of the year (around $90,500), having experienced a significant surge and deep correction throughout the year, returning near the starting point, reflecting a “high-level consolidation at a standstill” in the market.

The on-chain fund flow provides a more direct signal than sentiment. First, the role of spot ETFs has shifted from being the “booster engine” driving the bull market to a short-term “drainage pipe.” Since November, ETFs have recorded a cumulative net outflow of over $2 billion, with the largest single-day outflow approaching $870 million, setting the worst record since their listing. The impact on the narrative level far exceeds that of the funds themselves: the previous logic of “institutional long-term allocation” was the market's most core support point, but this support has now turned into a reduction in positions, leaving retail investors feeling the insecurity of “no adult safety net.” The behavior of large whales has also shown clear differentiation. Medium-sized whales holding 10–1000 BTC have continuously become net sellers over the past few weeks, selling tens of thousands of bitcoins, obviously cashing out as early players with substantial profits. In contrast, super whales holding over 10,000 BTC have been increasing their holdings simultaneously; on-chain data shows that some long-term strategic entities are buying against the trend during the downturn, accumulating scales of over 10,000 BTC.

At the same time, the net inflow of small retail investors (≤10 BTC) is also slowly increasing, indicating that while the most emotional novice users may panic and cut their positions, another group of more experienced long-term retail investors is seizing the opportunity to increase their holdings. The on-chain realized loss metric has recorded the largest daily loss in the past six months, with a large amount of chips being forced to sell at a loss, clearly signaling a typical “surrender selling” trend. Considering various on-chain indicators, what we observe is not a complete market withdrawal, but a rapid redistribution of chips—from short-term, emotional funds to entities with longer patience and greater risk tolerance. This is a structural phenomenon that often appears in the latter stages of major bull markets. The market is currently in a high volatility phase in the second half of the bull market—while the market capitalization has declined, it still remains at a strong platform, emotions have significantly cooled, and structural differentiation has intensified. Quality assets are resilient, but speculative assets continue to be cleared out. The overall market capitalization of the crypto market is on a downward trend.

If on-chain factors and emotions explain short-term fluctuations, then what truly drives this round of market trends is still macro interest rates—Bitcoin's real “whales” are not institutions or large holders, but the Federal Reserve. In the last quarter, the market widely bet that the Federal Reserve would gradually start a rate-cutting cycle from the second half of 2024 to early 2025. Rate cuts mean a recovery in liquidity and an increase in risk asset valuations, thus becoming an important driving force behind the previous rally. However, a series of recent economic data and statements from officials have strongly repriced this expectation. Although U.S. employment and inflation have slowed down, they have not yet reached levels that would support aggressive easing; some officials have even issued hawkish signals suggesting “cautious rate cuts,” causing the market to start worrying that rates might remain high for longer than previously expected. The cooling of rate cut expectations will directly lower the present value of future cash flows, thereby compressing the valuations of risk assets—highly elastic sectors such as technology growth, AI, and crypto are the first to be affected. Therefore, the recent decline is not due to a lack of new narratives in the crypto industry, but rather that macro-level factors have directly increased the “discount rate” for the entire universe of risk assets, representing a violent valuation adjustment.

2. The Deep Impact of AI Bubble on the Macro Economy of Cryptocurrency

From 2023 to 2025, artificial intelligence has overwhelmingly become the core force in the pricing of global risk assets, replacing outdated narratives like “metaverse,” “Web3,” and “DeFi summer,” and becoming the primary driving force behind the expansion of capital market valuations. Whether it's Nvidia's market capitalization surpassing one trillion dollars, OpenAI's ambitious infrastructure plans, or the explosive growth of super data centers and sovereign AI projects, the entire market has completed a paradigm shift from “tech growth” to “AI frenzy” in just two years. However, behind this feast lies an increasingly fragile leverage structure, massive capital expenditures, and a growing reliance on “internal circulation” in financial engineering. The rapid inflation of AI valuations has ironically made the entire high-risk asset system more vulnerable, with its volatility being directly and continuously transmitted to the crypto market through risk budgeting, interest rate expectations, and liquidity conditions, profoundly affecting the cyclical structure and pricing framework of Bitcoin, Ethereum, and altcoins.

In the institutional asset allocation system, AI leaders have transformed from traditional growth stocks into a “super technology factor,” becoming the center of high-risk portfolios, even carrying an endogenous leverage effect. When AI rises, risk appetite expands, and institutions naturally increase their allocation to high-risk assets, including Bitcoin; however, when AI experiences severe fluctuations, valuation pressures, or credit concerns, risk budgets are forced to contract. Model-driven and quantitative trading quickly reduce overall risk exposure, and crypto assets—being the most volatile and lacking cash flow support—often become the primary targets for reduction. Therefore, the tug-of-war and pullback in the later stages of the AI bubble will amplify the adjustments in the crypto market both emotionally and structurally. This was particularly evident in November 2025: when AI-related tech stocks adjusted due to financing pressure, rising credit spreads, and macro uncertainty, Bitcoin and U.S. stocks simultaneously fell below key ranges, forming a typical “cross-asset risk transmission.” Besides risk appetite, the liquidity squeeze effect is the most crucial suppressive factor of the AI bubble on the crypto market. In a macro environment with a “limited funding pool,” this inevitably means that the marginal funding for other high-risk assets is compressed, making cryptocurrencies the most obvious “sacrificial victims” of the funds.

The deeper impact comes from the competition of narrative systems. In market sentiment and valuation construction, the importance of narrative is often as significant as fundamentals. Over the past decade, the crypto industry has gained widespread attention and significant premiums through narratives such as decentralized finance, digital gold, and open financial networks. However, the AI narrative from 2023 to 2025 presents extreme exclusivity, with its grand narrative framework—“the core engine of the Fourth Industrial Revolution,” “computing power is the new oil,” “data centers are the new industrial real estate,” “AI models are the future economic infrastructure”—directly suppressing the narrative space of the crypto industry. At the policy level, media level, research level, and investment level, almost all attention is focused on AI, and Crypto can only regain its voice when global liquidity fully loosens. This means that even if on-chain data is healthy and the developer ecosystem is active, the crypto industry struggles to regain valuation premiums. However, when the AI bubble enters a phase of bursting or deep adjustment, the fate of crypto assets may not be pessimistic and could even welcome decisive opportunities. If the AI bubble evolves along the path of the 2000 internet bubble—experiencing a 30%-60% valuation correction, the clearing of some high-leverage, high-story-driven companies, and tech giants cutting capital expenditures, while the overall credit system remains stable—then the short-term pain in the crypto market will lead to significant mid-term benefits. If the risk evolves into a credit crisis similar to 2008, although the probability is limited, the impact would be more severe. The break in the tech debt chain, concentrated defaults in data center REITs, and damage to bank balance sheets could trigger “systemic deleveraging,” causing cryptocurrencies to experience a waterfall-like crash similar to March 2020. But such extreme situations often also imply a stronger medium to long-term rebound, as central banks will be forced to restart QE, cut interest rates, or even adopt unconventional monetary policies. Cryptocurrencies, as a tool to hedge against excessive currency issuance, will usher in strong recovery in an environment of excessive liquidity.

Overall, the AI bubble is not the end of the cryptocurrency industry, but rather a prelude to the next major cycle in crypto. During the bubble's upward phase, AI will squeeze funds, attention, and narratives from crypto assets; while during the bubble's burst or digestion phase, AI will re-release liquidity, risk appetite, and resources, laying the foundation for the reboot of the crypto industry. For investors, understanding this macro transmission structure is more important than predicting prices; the emotional freezing point is not the end, but a key stage for assets to migrate from weak hands to strong hands; real opportunities do not arise in the noise, but often emerge around the switching of macro narratives and the reversal of liquidity cycles. The next major cycle in the crypto market is likely to officially start after the retreat of the AI bubble.

3. Opportunities and Challenges in the Transformation of the Cryptocurrency Macro Market

The global macro environment at the end of 2025 is showing structural changes that are distinctly different from the previous years. After a two-year tightening cycle, global monetary policy has finally begun a synchronized shift, with the Federal Reserve implementing two interest rate cuts in the second half of 2025 and confirming the official end of quantitative tightening, halting balance sheet reduction. The market anticipates a new round of interest rate cuts in the first quarter of 2026. This signifies a transition of global liquidity from “withdrawal” to “provision,” with M2 growth returning to an expansionary channel and a noticeable improvement in the credit environment. For all risk assets, such cyclical turning points often indicate the formation of new price anchors. For the crypto market, the timing of the global easing cycle coincides with internal deleveraging, emotional lows, and ETF outflows hitting bottom, creating a foundation for 2026 to potentially become a “restart point.” Global synchronized easing is uncommon, but the macro landscape of 2025-2026 exhibits a high degree of consistency. Japan has launched a fiscal stimulus plan exceeding $100 billion, continuing its ultra-loose monetary policy; China is further strengthening monetary and fiscal easing under economic pressure and structural demand; Europe is beginning discussions on restarting QE on the brink of economic recession. Major global economies adopting easing policies simultaneously is a super favorable factor that the crypto assets have not encountered in recent years. The reason is that crypto assets are essentially one of the asset classes most sensitive to global liquidity, especially Bitcoin, whose valuation is highly correlated with the dollar liquidity cycle. When the world simultaneously enters an environment of “easing + weak growth,” the appeal of traditional assets diminishes, and liquidity overflow will prioritize seeking higher Beta assets, while crypto assets have historically surged under these macro conditions in the past three cycles.

At the same time, the intrinsic structure of the cryptocurrency market has gradually recovered from the turmoil of 2025. Long-term holders (LTH) have not shown significant selling, and on-chain data indicates that chips are being transferred from emotional sellers to strong belief buyers; whales continue to accumulate when prices are deeply adjusted; the large outflows of ETFs mainly come from retail panic rather than institutional withdrawals; the funding rate in the futures market has returned to neutral or even negative ranges, with leverage being completely squeezed out of the market. This combination means that the selling pressure in the market mainly comes from weak hands, while chips are concentrating in strong hands. In other words, the crypto market is in a position similar to Q1 2020: valuations are suppressed, but the risk structure is much healthier than it appears. However, the other side of opportunity is challenge. Although the easing cycle is returning, the spillover risks of the AI bubble cannot be ignored. The valuations of tech giants are approaching unsustainable ranges, and if there are deviations in the capital chain or profit expectations, tech stocks may once again experience severe adjustments, while crypto assets, as a high-risk category, will inevitably passively endure “systematic Beta sell-off.” Additionally, Bitcoin lacks decisive new catalysts in the short term. The ETF pattern for 2024-2025 has been fully traded by the market, and new main narrative needs to wait for whether the Federal Reserve will initiate QE, whether large institutions will return to accumulation paths, and whether traditional finance will accelerate the layout of crypto infrastructure. The continued outflow of ETFs reflects extreme fear among retail investors, and the panic index dropping to a maximum of 9 still requires time to complete the “surrender bottom”; the market needs to await new incremental signals. Considering the macro environment and market structure, from a temporal perspective, the crypto market is expected to continue oscillating and bottoming out in Q4 2025 - Q1 2026. The pressures of the AI bubble, ETF outflows, and uncertainty in macro data jointly drive the market to maintain a weak oscillating pattern. However, with the acceleration of interest rate cuts in the first and second quarters of 2026 and a substantial return of liquidity, BTC is expected to stand above $100,000 again, and in Q3-Q4 2026, with the expectations of QE, new narratives of DePIN/HPC, and national reserve BTC, a new bull market cycle confirmation is anticipated. Such a path indicates that the crypto market is shifting from the “valuation kill stage” to the “re-pricing stage,” while a true trend reversal requires resonance between liquidity and narrative.

Investment strategies under this pattern need to be recalibrated to cope with volatility and seize opportunities. Dollar-cost averaging (DCA) during extreme fear intervals statistically yields the best returns and is the best way to hedge against short-term noise and emotional fluctuations. In terms of position structure, the proportion of altcoins should be reduced, and the weight of BTC/ETH should be increased, as altcoins tend to decline more sharply during risk control compression, while the ETF accumulation mechanism will continue to strengthen Bitcoin's relative advantage in the medium term. Given that tech stocks may undergo another round of 'internet bubble-like' deep adjustments, investors need to retain a reasonable amount of emergency funds to secure the best entry point when macro risk events trigger excessive sell-offs in crypto assets. From a long-term perspective, 2026 will be a key year for the global redistribution of liquidity and will mark the year when the crypto market returns to the main stage after undergoing structural cleansing, and the true winners will be those who maintain discipline and patience when emotions are at their coldest.

**4.**Conclusion

Integrating on-chain structures, sentiment indicators, capital flows, and global macro cycles, this round of decline resembles a severe turnover in the latter part of a bull market, rather than a structural reversal. The repricing of interest rate expectations has put pressure on short-term valuations, but the clear easing channel globally, synchronized stimulus in Japan and China, and the termination of QT indicate that 2026 will be a key year for liquidity expansion. The AI bubble may continue to exert short-term drag, but its bursting or digestion will instead release constrained capital and narrative space, providing new valuation support for scarce assets like Bitcoin. It is expected that the market will primarily consolidate in a volatile bottom from Q4 2025 to Q1 2026, with the interest rate cut cycle in Q2–Q4 2026 becoming a trend reversal window. A disciplined DCA strategy, increasing BTC/ETH weight, and maintaining emergency positions are optimal strategies for navigating volatility and welcoming a new cycle.