Liquidity flow drives bitcoin, but halving cycle could slow gains in 2026

Bitcoin’s price continues to consolidate around $70,780, reflecting a complex mix of favorable macroeconomic dynamics and cycle-specific risks. While capital flows into digital assets and central banks’ monetary expansion create a positive environment to start 2026, analysts warn that the halving cycle could limit expected returns compared to previous years.

Jim Ferraioli, Director of Cryptocurrency Research and Strategy at Schwab Center for Financial Research, has identified a structured analytical framework to understand Bitcoin’s behavior this year. His model proposes ten driving forces: three operating at a structural level and seven functioning in the short term, creating a complex web of bullish and bearish pressures on the asset’s price.

Long-term Factors: The Structural Foundation of the Crypto Market

The three fundamental pillars supporting Bitcoin are the expansion of global money supply (M2), Bitcoin’s deflationary supply growth, and its gradual adoption by institutions and users. These elements form the base upon which all short-term price dynamics rest.

The expansive money supply from major central banks creates an environment where alternative assets like Bitcoin become more attractive. Simultaneously, Bitcoin’s finite supply exerts structural upward pressure, while slow institutional adoption in the first half of the year could temper these positive effects.

Short-term Dynamics: Risk Sentiment and Liquidity Are Favorable

The seven short-term factors — market risk sentiment, interest rate levels, US dollar strength, seasonal patterns, excessive central bank liquidity, wallet concentration, and financial contagion — create a mixed but predominantly favorable environment to start 2026.

Ferraioli highlights that credit spreads remain compressed, removing signs of immediate financial stress. The derivatives market has cleared most speculative positions that triggered volatility at the end of 2025. “A reduced risk aversion environment in equities should favor cryptocurrencies as more volatile assets,” he noted.

Monetary policy acts as an additional catalyst. Expectations of declining interest rates and a weakening US dollar throughout 2026 provide tailwinds for risky assets. Even more relevant, the end of quantitative tightening programs and the resumption of balance sheet expansion by central banks increase liquidity in the system, a critical element to sustain volatile asset valuations.

The 2026 Dilemma: Halving vs. Adoption

Bitcoin’s biggest challenge this year lies in two opposing forces. On one hand, potential regulatory clarity — including possible legislative approvals like the Clarity Act — could accelerate genuine institutional adoption. On the other hand, the halving cycle’s historical pattern presents a problematic trend: the third year after a supply halving has historically marked the start of a bearish phase.

“There is a significant contingent of crypto traders who strictly follow the halving cycle theory. If this narrative takes hold, it could pressure prices regardless of macroeconomic fundamentals,” Ferraioli warned. The previous halving cycle culminated in 2021, suggesting that 2026 might enter a historically less favorable phase under this metric.

Adoption may also slow during the first half of the year, especially after the volatility at the end of 2025 scared off novice investors. However, clear regulatory changes could reverse this trend.

Return Expectations: Below the Historical Average

Over the past decades, Bitcoin has gained approximately 70% from its annual low on average. However, Ferraioli anticipates that 2026 will record returns significantly below this historical average, reflecting the pressure from the halving cycle and potentially slower adoption.

This year also marks a shift in how Bitcoin correlates with traditional assets. While it maintains a correlation with AI-driven mega-cap tech stocks, its connection to broader indices has decreased. This decoupling suggests Bitcoin is evolving toward a more independent asset behavior.

Real-Time Market: Volatility and Next Levels

The current price of $70,780, up 4.10% in the last 24 hours, reflects optimism driven by improved liquidity flow and risk sentiment. Altcoins follow suit, with Ethereum, Solana, and Dogecoin posting gains of around 5%.

Analysts are monitoring two scenarios: if oil and maritime transportation prices in the Strait of Hormuz stabilize, Bitcoin could test the $74,000 to $76,000 range. If geopolitical tensions escalate, prices could retreat toward mid-$60,000s.

In conclusion, 2026 presents a landscape where ample liquidity and expansive monetary policy favor Bitcoin, but the halving cycle and potential slowdown in adoption temper expectations of extraordinary gains. The outcome will depend on the balance of these factors throughout the year.