Bitcoin Is Now in Bear Market Territory. But Here are 3 Catalysts That Could Lead to a Recovery.

Bitcoin (CRYPTO: BTC) is now down by more than 50% from its October 2025 peak of $126,080.

That qualifies as a bear market. Three catalysts in particular could plausibly reset the trend and cause the coin to climb again, so let's examine each.

Image source: Getty Images.

1. The Fed pivots to cutting rates

Bitcoin flourishes when there's plenty of liquidity in the global financial system.

When credit is loose, risk assets appreciate; when it tightens, they don't. Right now, the setup is unfriendly. May's Consumer Price Index (CPI) came in at 4.2%, and the Federal Reserve under new chair Kevin Warsh has held rates steady, all while markets are pricing in a 79% probability of a hike, not a cut, by the end of 2026.

That situation could potentially invert to the benefit of Bitcoin if two conditions align. First, the Iran ceasefire would need to hold long enough for elevated energy prices to decline; there is a small amount of evidence that this is already happening, albeit very slowly, due to the uncertain stability of the current ceasefire. The second condition would be if the employment rate declines, which hasn't happened yet.

Still, underneath the headline figure, core inflation has been moderating modestly on a month-over-month basis, suggesting that the underlying inflationary pressure may be narrower than the annual figure implies. If growth cools into the fall -- something for which there isn't yet any evidence -- the committee could rotate to making cuts by early 2027, boosting Bitcoin.

2. The Strategy issue resolves

Strategy (NASDAQ: MSTR) holds roughly 847,363 bitcoins, or close to 4% of the possible supply. That's a lot for a single player of what was originally a cryptocurrency intended as decentralized and equitably distributed money. The bigger factor is that Strategy is now openly saying that it's willing to sell some of what it holds.

On June 29, Strategy filed its Digital Credit Capital Framework, authorizing as much as $1.25 billion in Bitcoin sales to fund its preferred stock dividends as well as buybacks of its various share classes. The company spent four years promising never to sell, and telling investors never to sell, and that pledge is now dead. For years, that pledge functioned as an article of faith for many holders, until such a large share of the supply ended up on Strategy's balance sheet. Now, Strategy is one of the public faces of Bitcoin, and that hasn't exactly been great for the coin's price.

There are actually a few possibilities for a catalyst here.

Either Strategy repeatedly taps the selling framework and the market absorbs the sales of Bitcoin with a sharp additional leg lower until nobody is surprised or intimidated by the offloading any more, or Bitcoin rallies enough that Strategy's premium to its net asset value reopens the way for it it to resume selling new shares of its stock to fund Bitcoin purchases.

Another possibility: Strategy's financial engineering collapses catastrophically, causing it to go out of business and sell all its Bitcoin. While that would involve a serious and perhaps prolonged downturn for the coin, in the long run, it also would clear out the risk of a major holder selling, which would be positive (if temporarily painful).

3. The 2028 halving pull effect

About 654 days remain until the next halving, which is projected for April 2028. Bitcoin mining rewards will then halve from 3.125 bitcoins to 1.5625 bitcoins per block, cutting daily new supply issuance overnight.

Before the 2012, 2016, and 2020 halvings, Bitcoin's price began accelerating in the roughly 12 months before, as long-term holders and miners front-ran the coming supply cut. The 2024 cycle was a bit different because spot Bitcoin exchange-traded funds (ETFs) pulled demand forward. But if the same seasonality otherwise holds, the pre-halving accumulation window will start around April 2027, nine months from now.

The caveat here is that this cycle could be unlike other. Past cyclical peaks happened 12 to 18 months post-halving, and October 2025 fit that timing. Relative to the peak, past halving cycles saw declines of 70% to 80%, and, per that logic, the current 50% slump may not be finished. Nonetheless, of all these catalysts, the next halving is the one that gives me the most confidence in allocating capital, as it has a concrete link to the asset's supply.

Alex Carchidi has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.