The cascade of failed expectations: how the year-end crypto bubble burst

By early 2025, the crypto community anticipated a spectacular year-end. Massive capital inflows into bitcoin ETFs, digital asset treasuries (DATs) promising to be unstoppable structural buyers, and the historical pattern of gains in the fourth quarter all seemed to conspire in favor of new highs. However, a cascade of negative events transformed those hopes into one of the market’s worst performances in years.

From optimism to decline: the October liquidation cascade

Everything changed on October 10, when a $19 billion liquidation wave shook the cryptocurrency markets. Bitcoin collapsed from $122,500 to $107,000 within hours, while the rest of the market suffered even more severe declines. This event was not merely a temporary correction but a symptom of a deeper problem: the illusion that institutionalization through ETFs had shielded the market from such drops.

Two months after the October crash, the scar remains open. Market depth has not recovered, and investor confidence in leverage has evaporated. Bitcoin hit a bottom at $80,500 on November 21, rebounding later to $94,500 on December 9, but the outlook remained fragile. By the end of January 2026, the price stands at $88,120, still reflecting the underlying market weakness.

The most revealing point: during this “recovery” period, open interest in futures fell from $30 billion to $28 billion. This shows that the recent rise was not driven by new demand from buyers but by mechanical closing of short positions. In other words, it was a technical rebound without conviction, not the start of an upward trend.

DATs and ETFs: from structural promises to forced sellers

The DAT bubble—publicly traded companies hastily created to replicate Michael Saylor’s MicroStrategy strategy—promised to become a perpetual engine of bitcoin buying. During spring, treasury accumulation was frantic. Investors believed they had found a risk-free structural bet in cryptocurrencies.

But as prices fell in October, the virtuous cycle turned into a downward spiral. DATs that started the year capitalized now see their shares trading below net asset value (NAV). This is a critical red line: it limits their ability to issue new debt or shares to continue accumulating bitcoin. The most dramatic case was KindlyMD (NAKA), which went from a speculative star to a penny stock; its bitcoin holdings are now worth more than twice the company’s total market capitalization.

What is alarming is that several DATs could be forced to sell. CoinShares noted in early December that “in many ways, the DAT bubble has already burst.” Some executives, like Phong Le of MicroStrategy, have hinted they might liquidate positions if NAV drops below 1.0. In a market without deep liquidity, this could trigger a cascade of forced sellers.

Meanwhile, altcoin ETFs also failed to deliver on their promises. Solana accumulated $900 million in inflows since late October, while XRP surpassed $1,000 million in just over a month. However, SOL has fallen 35% since the ETF debut (now trading at $123.09), and XRP has retreated nearly 20% (now at $1.88). Smaller ETFs like Hedera ($0.10), Dogecoin ($0.12), and Litecoin ($67.40) have barely registered interest amid the disappearance of risk appetite.

The confidence bubble: why catalysts failed

Analysts promising a bullish seasonality based on the fourth quarter are making a fundamental mistake: confusing historical correlation with inevitable causality. Certainly, Q4 averaged 77% gains since 2013, but that only matters in contexts of underlying structural strength. The years 2022, 2019, 2018, and 2014 were exceptions precisely because their fundamentals were broken.

2025 aligns with that group of exceptions. Bitcoin has fallen 23% since early October, projecting its worst fourth quarter in seven years. Trump’s narrative about favorable regulations also gradually faded. The Federal Reserve rate cuts—three in total: September, October, and December—were announced as bullish catalysts for risk assets like bitcoin, but the market continued to decline.

This is the central paradox: in an environment where gold has risen 6.2% since October (touching highs above $5,500 per ounce), bitcoin behaves more like a highly volatile speculative risk asset than a store of value. Investors seeking protection have preferred physical gold and silver over digital tokens.

Warning signs for 2026: empty liquidity and capitulation

The cryptocurrency market enters 2026 without clear catalysts and with deep scars. DATs are on track to shift from structural buyers to forced sellers. The October cascade left a market lacking liquidity depth. Rate cuts had no effect. Altcoin ETFs cannot counteract selling pressure.

However, there is an optimistic side. Historically, when these speculative structures collapse—like in 2022 with Celsius, Three Arrows Capital, and FTX—the following months often present good entry points. Genuine capitulation, when it occurs, tends to create opportunities for patient investors.

The immediate risk is that several DATs will liquidate positions, potentially triggering another cascade of selling pressure in an already fragile market. If that happens, the decline could be amplified. But if the market manages to absorb that selling without further trauma, the DAT bubble could finally deflate, paving the way for a more solid recovery in the second half of 2026. For now, investors should carefully monitor any signs that the forced sale cascade is about to begin.