Author: Zach Pandl (Head of Research at Grayscale)

Translation: Shen Chao TechFlow

Shen Chao Reading Guide: Bitcoin fell below $60,000 this week, reaching a new low for this cycle, having halved from the peak of $125,000 on October 10th. Grayscale's Head of Research, Zach Pandl, places this retracement within historical cycles, considering it just another periodic pullback within an upward trend, rather than a trend reversal. He outlines two scenarios for emerging from the bear market: in the optimistic scenario, Bitcoin could already be close to the bottom; in the pessimistic scenario, it could drop further. The key variable for judgment is whether the Federal Reserve will raise interest rates and whether the CLARITY Act can pass the Senate. This article provides a research perspective to assist holders in making directional judgments.

This week, Bitcoin fell below $60,000, refreshing the low point of this cycle. From the peak of $125,000 on October 10th, Bitcoin has now dropped over 50%. In our view, this retracement is yet another periodic pullback in Bitcoin's long-term upward trend (Figure 1).

Figure 1: Bitcoin's retracement is just another cycle in the upward trend. The dark line represents Bitcoin's price (logarithmic, left axis), the orange line is the statistical trend line based on HP filtering, and the light purple line shows the periodic deviation of price from trend (right axis). The cycle low points of the years 2012, 2014, 2018, and 2022 are marked, showing that the current cycle deviation has once again returned below the zero axis.

Data source: Coin Metrics, Grayscale Investments, monthly averages as of June 26, 2026. Past performance does not guarantee future results.

Several factors have suppressed Bitcoin’s price in recent months. The most critical factor is the changing market expectations regarding Federal Reserve policy, which has directly impacted the logic of "currency devaluation trades." At the end of last year, the prediction market widely expected Trump to nominate a relatively dovish Kevin Hasset as Fed Chair. Instead, he nominated the relatively hawkish Kevin Warsh, who officially took office this month. Due to persistent inflation, the market now anticipates that the Federal Reserve will not cut interest rates this year, but will instead raise them (Figure 2). Spot gold prices are also competing with fiat currencies (like the dollar), having fallen about 25% from their peak, and after adjusting for volatility, the drop is similar to that of Bitcoin.¹

Figure 2: The market now expects the Federal Reserve under Warsh’s leadership to raise interest rates. The orange line shows the Federal Reserve's target rate, while the dark line shows the 2-year swap rate. In the first half, the swap rate was below the target rate (market expected a rate cut), but after March 2026, the swap rate surpassed the target rate and continued to rise (market expects a rate hike).

Data source: Bloomberg, Grayscale Investments, as of June 26, 2026. Past performance does not guarantee future results.

In addition to the shift in Federal Reserve expectations, the crypto market is currently grappling with three issues: first, uncertainty about whether the CLARITY Act will pass; second, the pressure on the assets and liabilities of Strategy with leverage; third, investors are concerned about the security risks posed by quantum computing to digital assets.

At the same time, the improving regulatory environment continues to drive institutional adoption of public chain technology. We believe this is the most important structural trend in the digital asset market. Just this month, the CFTC approved the first batch of perpetual futures in the US market, and the growth of stablecoins and tokenized assets will provide support for several leading public chains. The broader social and political undercurrents behind crypto assets remain: unconstrained growth of government debt, declining public trust in intermediary institutions, and the rise of AI. AI may stimulate demand for alternative payment systems and for technologies that can safeguard human sovereignty.

Overall, we see two paths for Bitcoin to emerge from this bear market (Figure 3). The baseline scenario is: the CLARITY Act passes the Senate, Strategy takes measures to strengthen its balance sheet, and the Federal Reserve does not raise interest rates. If the upcoming news continues in this direction, Bitcoin’s price may be close to the bottom. The bearish scenario is: the CLARITY Act fails to pass this year, Strategy and other DAT (Digital Asset Treasury companies) further deleverage, and the Federal Reserve is forced to raise rates due to inflation. If the downside risks materialize, Bitcoin may experience a gentle downturn. Historically, in several cycles, Bitcoin's price has dropped around 80%, but we do not believe this cycle’s peak-to-trough retracement will be that deep, as the current bull market itself has been relatively restrained and institutional demand for digital assets remains sticky.

Figure 3: Two scenarios for Bitcoin to emerge from the latest bear market. The prices of historical cycles are aligned to the same starting point in the graph (cycle end date = 100), with the horizontal axis showing the number of days after the cycle ends. Gray is Jun-11, orange is Dec-13, purple is Dec-17, green is Nov-21, and dark green is the current cycle, Oct-25. The two dashed lines on the right represent the 80th and 20th percentile paths of option implied pricing, corresponding to the optimistic and bearish scenarios mentioned above. Historically, some of the worst cycles (such as Jun-11 and Dec-17) fell to only levels of 10-20.

Data source: Bloomberg, Coin Metrics, Grayscale Investments, Bitcoin priced in BTC/USD spot, with the cycle defined as periods in history exceeding 100 days and a decline of over 50%, as of June 25, 2026. Past performance does not guarantee future results, for illustrative purposes only.

The Grayscale research team remains extremely optimistic about the medium- and long-term prospects of crypto assets. Over the past decade, it has been the best-performing asset class², and we believe it will continue to be so in the next decade. Investors will manage their portfolio risks around short-term catalysts to meet their individual needs. However, in our view, the current bear market provides long-term investors with an excellent opportunity to position themselves ahead of time, betting on the structural growth of public chain technology and digital asset valuations over the next decade.

Core conclusion: Whether Bitcoin has reached the low point of this cycle depends on several upcoming catalysts, including the Federal Reserve's interest rate decision and the progress of the CLARITY Act in the US Senate. We see many structural positives for crypto assets and believe that the current valuation presents an attractive entry point for long-term investors.

¹ Considering the relative volatility between the two (22% for gold and 47% for Bitcoin over the past two years), a 25% drop in gold roughly corresponds to a 40-50% drop in Bitcoin.

² Asset classes represented by the following indices: S&P 500 Total Return Index (US stocks), Dow Jones Real Estate Total Return Index (real estate), S&P/GSCI Total Return Index (commodities), Bloomberg US Aggregate Bond Index (US bonds), MSCI Emerging Markets Total Return Index (emerging market stocks), Bloomberg US Treasury Index (US treasuries).