Bitfinex Alpha | 2026 will be the year of liquidity

December 15th Bitfinex Alpha | 2026 will be the year of liquidity

Welcome to the final edition of Bitfinex Alpha 2025. In this edition, we look back at what influenced the market in 2025 and what we believe will determine performance in 2026.

This period, which felt like the end of an era, saw a clear structural break from Bitcoin’s traditional four-year halving-driven framework. Annual BTC issuance is currently below 1%, reducing the marginal supply shock at each halving and reducing its ability to dictate market cycles. BTC price trends are therefore increasingly shaped by demand-side forces and macroeconomic conditions, not just mechanical scarcity.

This change was evident in 2025. Even though the halving model suggested the cycle was complete, Bitcoin avoided the large drawdowns of previous eras. Structural inflows from ETFs, corporates and sovereign-related entities absorbed multiples of annual mining supply, compressed volatility and accelerated the recovery. Drawdowns beyond 2024 remain significantly shallow, reflecting patient long-term funds dominating the market rather than speculative retail flows.

However, at the macro level, the role of BTC alongside traditional hedging has been strengthened. Persistent fiscal deficits, rate cuts amid above-target inflation, and rising sovereign debt risks have revived the hedging narrative. In 2025, gold led this movement.

So what will happen in 2026? First, consistent with the historical pattern of gold outperforming at macro turning points, we believe BTC will follow suit with a lag.

Second, liquidity will increasingly drive BTC performance. The global liquidity cycle has been prolonged due to massive government bond issuance in 2025, prolonged quantitative tightening, and bringing forward fiscal plans. Currently, the liquidity situation is likely to turn more favorable for BTC as issuance volume decreases and QT narrows towards late 2025 and early 2026.

Third, institutional adoption continues to deepen. With regulatory walls falling and sovereignty concerns increasing, crypto ETPs are now the primary access point to digital assets. Crypto ETPs currently have just over $200 billion in assets under management and are expected to exceed $400 billion by the end of 2026, reinforcing Bitcoin’s transition to longer-term, less volatile, mature, macro-sensitive assets.

The U.S. economy enters 2026 after a long period of adjustment from the post-pandemic inflation shock. In 2025, growth continued to cool, inflation eased but remained persistent, and the Federal Reserve cautiously eased the economy in stages.

Labor market conditions have softened significantly. Employment slowed, wage growth slowed, and the unemployment rate was in the mid-4% range, but this was due to weak demand for new workers rather than large-scale layoffs. Revised data confirms that job growth is weaker than originally reported, consistent with a low-momentum environment late in the cycle. Looking ahead, the labor market is expected to remain weak but stable in 2026, with the unemployment rate expected to remain broadly close to current levels unless consumer demand weakens more sharply.

Inflation continued to ease in 2025, but to an uneven degree. Prices were low, but housing and services kept headline inflation near 3%, with key policy measures above the Fed’s 2% target. PCE was slightly below CPI, but sustained services inflation and new tariff pressures pose upside risks. We expect inflation to ease gradually in 2026 and potentially hold steady in the near term before moving closer to target towards the end of the year.

Monetary policy was carefully calibrated. After keeping interest rates unchanged for much of 2025, the Fed began easing in September, cutting rates by three quarter points through December while maintaining a data-dependent stance into 2026.

At the same time, the Fed ended balance sheet drains and began technical reserve management purchases to stabilize short-term money markets, but this does not imply aggressive easing, but is a measure aimed at maintaining financial soundness. Although the current Fed outlook, as shown in the dotplot, suggests only one more rate cut in 2026, we believe there is significant room for further easing and that pressure for further rate cuts will increase. We see room for a more accommodative path as unemployment continues to rise, job creation slows, and inflation continues to ease, although it remains above target. Our base case is two to three additional rate cuts in 2026.

Financial markets have largely accepted the shift to accommodative monetary policy, despite weak labor markets and low inflation. Relative disinflation, policy easing, resilient corporate earnings, and continued enthusiasm for AI-driven productivity gains propelled U.S. stocks to record highs in 2025. As expectations shifted to a slowing economy and further interest rate cuts, government bond yields, especially short-term interest rates, fell, and the yield curve gradually steepened. Key risks ahead include unexpected inflation, economic slowdown in China and Asia, and new trade and policy shocks. However, as of late 2025, the market appears to be pricing in a good 2026 with solid growth (2-2.5% GDP), easing inflation, and continued but cautious Fed easing. Under these circumstances, we would expect stock prices to rise further (S&P target is in the 7,500-8,000 point range) and Treasury yields to fall (to below 4% for the 10-year). Investors continue to pay close attention to developments at the Federal Reserve. A more aggressive rate-cutting cycle could push stocks higher and yields further lower, while signs of sticky inflation could tip expectations out of balance.

Coupled with these macro trends are major changes in trade policy. While the Trump administration’s aggressive tariff regime significantly raised effective import taxes, compressed trade volumes and narrowed the trade deficit, it also contributed to price pressures and instability in global markets. Although the pace of escalation slowed in the second half of this year, tariffs remain high by historical standards and are likely to remain in place until 2026, creating continued uncertainty over inflation, corporate profits, and global growth.

As 2025 draws to a close, we look forward to a new year where BTC is expected to hit another all-time high ($126,110), supported by the weight of further monetary easing, increased liquidity, and continued cryptocurrency adoption.

Thank you for your continued support throughout 2025. We hope you’ve appreciated all the insights we’ve provided over the past year as much as we’ve enjoyed providing them to you. We will be back again in the new year.

In the meantime, Bitfinex is sending you lots of happy holidays.