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The debate surrounding Bitcoin’s current market phase has intensified as analysts point to a temporary disconnect between the cryptocurrency’s price and global liquidity trends. While some fear that Bitcoin’s recent pullback signals the start of a broader downtrend, others insist this is simply a reset — a healthy correction before another major leg upward.
Despite its decline from record highs, many market observers remain optimistic that Bitcoin’s long-term structure remains intact and that the asset could regain upward momentum into early 2026.
Bitcoin’s Recent Struggle and Market Sentiment
Bitcoin has seen a turbulent few months. Following a powerful rally that took it to $126,000, the world’s largest cryptocurrency has since fallen roughly 21%, hovering just above $100,000 in November. The sell-off, which began after the October deleveraging event that wiped out nearly $20 billion in open positions, has left traders divided.
Across the crypto community, discussions on platforms like X (formerly Twitter) show a clear split: one group believes the bull cycle has peaked, while another sees the recent correction as part of a larger accumulation phase.
The key narrative fueling bearish arguments has been the decoupling of Bitcoin from the global M2 liquidity supply — an indicator that tracks the total amount of money available in circulation across economies.
Understanding the M2 Liquidity Connection
Historically, Bitcoin’s price has shown a strong correlation with M2 global liquidity, meaning that when liquidity expands, risk assets like Bitcoin tend to perform well. Conversely, when liquidity tightens, markets often struggle.
However, according to crypto analyst Jesse Eckel, Bitcoin’s recent decoupling from M2 is not necessarily a sign of weakness. Instead, he suggests it’s a reflection of who currently holds the liquidity.
Eckel explained that since July 2025, when the U.S. government raised its debt ceiling, the Treasury has absorbed substantial market liquidity by issuing new bonds. This effectively drained money from financial markets, temporarily tightening conditions and slowing down Bitcoin’s momentum.
He noted, “The M2 BTC chart should start to correlate again once we see market tradable liquidity move higher. I believe our next major burst in liquidity is due in 2026.”
Historical Liquidity Trends and Market Behavior
Data from previous market cycles supports Eckel’s point. In both 2017 and 2021, year-over-year (YOY) liquidity growth surged dramatically, coinciding with two of Bitcoin’s largest bull markets.
The difference this time, analysts argue, is timing. While liquidity growth has been constrained in 2025, the macroeconomic setup — including record government debt, steady inflation, and interest rate adjustments — could set the stage for renewed liquidity expansion next year.
In this context, Bitcoin’s current stagnation could be viewed as a temporary cooling-off period before broader market liquidity rises again, potentially reigniting the next bullish phase.
Analysts See the October Correction as a Reset
While the October “flash crash” rattled traders, major institutional analysts interpret it differently. A recent Coinbase market report described the sharp sell-off as a “necessary reset” rather than the end of the cycle.
“Our view of the sell-off is that this leverage flush was a necessary reset for crypto markets rather than a cycle top, potentially setting the stage for a grind higher in the months to come,” Coinbase analysts wrote.
This perspective was echoed by Arthur Hayes, founder of BitMEX, who has long maintained that periodic leverage flushes are essential to maintain a healthy market structure. According to Hayes, such events eliminate over-leveraged positions, allowing more stable growth as new capital enters at lower price levels.
Options Data Supports a Balanced Outlook
Options market data also suggests that institutional traders are not abandoning Bitcoin. According to Coinbase, the majority of large holders are positioning for a price range between $90,000 and $160,000 over the next three to six months.
This range reflects both caution and optimism: traders are preparing for short-term downside risk but maintaining exposure to potential upside momentum heading into 2026. The data implies that while volatility may persist, most investors see limited downside relative to the long-term opportunity.
Liquidity and Government Borrowing: The Hidden Connection
The relationship between Bitcoin and liquidity has grown increasingly complex due to ongoing government borrowing. When governments, particularly the U.S., issue large amounts of debt, they often absorb liquidity that would otherwise flow into risk assets.
In 2025, rising Treasury issuance and restrictive monetary policy effectively drained liquidity from the system. However, analysts note that this trend cannot continue indefinitely. As borrowing costs rise and debt levels increase, central banks may eventually be forced to ease financial conditions again — a shift that could benefit Bitcoin and other scarce assets.
As Arthur Hayes described earlier this year, the U.S. may soon enter a phase of “stealth quantitative easing,” where liquidity quietly returns to markets through mechanisms like the Standing Repo Facility. Such actions could restore the correlation between Bitcoin and M2, triggering another upward leg.
Analysts Remain Bullish into 2026
Despite short-term weakness, several major analysts maintain a bullish long-term outlook for Bitcoin. Fundstrat’s Tom Lee, known for his accurate calls in past cycles, recently said that Bitcoin’s fundamentals remain strong, and the October correction could be “the rest before the next climb.”
Lee expects improving liquidity conditions and broader institutional participation to drive renewed demand into 2026. Combined with the anticipated 2025–2026 liquidity rebound, many see Bitcoin positioned for another rally once macro conditions stabilize.
Conclusion: A Reset, Not a Reversal
The phrase “reset, not reversal” has become the dominant theme among market observers assessing Bitcoin’s current state. While the decoupling from M2 liquidity may have spooked some investors, most analysts agree that this divergence is temporary and tied to short-term liquidity absorption.
As macroeconomic conditions evolve, and with expectations of higher liquidity in 2026, Bitcoin’s correlation to global money supply could return — potentially setting the stage for another strong upward cycle.
For now, the consensus among experienced traders and institutions is clear: Bitcoin’s long-term uptrend remains intact. The recent correction, though painful for some, may ultimately prove to be a foundation for the next phase of growth in the world’s most valuable digital asset.
