Why Bitcoin's Rally Signal Failed to Extend – Traders Brace for Sideways Action

Bitcoin faces a critical juncture as 2025 draws to a close. The cryptocurrency must reclaim $94,000 to avoid finishing the year in negative territory, yet institutional players are increasingly defensive. With a year-to-date decline of 5.7% and a disappointing Christmas period performance, the lack of a decisive breakout has left traders questioning whether momentum can resurface before the calendar flips.

The Institutional Exodus Tells the Story

The clearest sign of weakening conviction came from U.S. Spot Bitcoin ETF data. Q4 2025 saw outflows totaling $5.5 billion—the most significant redemptions since the funds launched in 2024. However, this exodus appears more tactical than fundamental. The primary driver was hedge funds unwinding lucrative basis trades as yields collapsed from 10% to 5%.

Cumulative inflows remain only 9% below October’s $62 billion peak, suggesting that despite the quarterly pullback, long-term holders maintain their positions. This bifurcation—short-term profit-taking alongside persistent strategic conviction—creates an uncertain foundation for near-term price action.

Options Markets Flash Caution Signals

The options market is sending more explicit warning signs. According to analytics from Laevitas, the 1-week 25-Delta Risk Reversal has turned decidedly negative across all time horizons (1 week through 1 year). This shift indicates institutional hedgers are prioritizing downside protection through put purchases rather than bullish bets or breakout scenarios.

For market sentiment to shift materially, this Risk Reversal metric must first ease back toward zero, then turn positive—a signal that hasn’t yet materialized. QCP Capital, a Singapore-based trading desk, suggests that a firm directional move for Bitcoin may only emerge once liquidity conditions normalize post-holiday.

Technical Constraints: $85K-$94K Range

Bitcoin has remained pinned below $90,000 since mid-December, with overhead resistance entrenched at $94,000. The consolidation between $85,000 and $94,000 may persist well into January, particularly given the lingering MSCI delisting risk surrounding Bitcoin treasury firms—currently estimated at 75% probability heading into Q1 2026.

The mid-January MSCI index review outcome could prove pivotal in breaking this deadlock. Until clarity emerges, Bitcoin’s trading range appears locked, with price extension signals failing to materialize.

What Happens Next?

Option traders had positioned for a potential easing of the BTC selloff, yet the $85K-$94K range shows signs of extending into early 2026. While ETF outflows hit record levels, the departure of short-term profit-takers shouldn’t obscure the underlying resolve of long-duration investors. The question now centers on whether external catalysts—be they macro developments or the MSCI decision—can reignite the breakout signal that currently eludes the market.