Bitcoin: How did BTC react to U.S. inflation cooling down?

ambcryptoPublished on 2025-12-19Last updated on 2025-12-19

Abstract

Bitcoin's Q4 2025 performance defied expectations, declining 23% and erasing most of its gains from the previous two quarters. This led to shaken optimism, liquidated leveraged traders, and increased fear, with dip-buying activity remaining subdued. Despite this, analyst Tom Lee maintains his projection for a new all-time high before the first month of 2026. A key catalyst is the cooling U.S. inflation, with core CPI dropping to 2.6% and overall CPI at 2.7%, bringing it near the Fed's 2% target. This macro development sparked a positive market reaction, with BTC jumping nearly 3% intraday and institutions showing renewed interest. With the Q4 sell-off and major FUD behind it, Bitcoin appears to be forming a base for a strong Q1 rally, historically its second most bullish period.

To understand what lies ahead, it’s crucial to first look back.

Q4 has upended market expectations. What was supposed to be a “seasonal tailwind” for Bitcoin [BTC] ended up being its weakest quarter of 2025, with BTC down 23%, erasing over 60% of the gains from Q2 and Q3.

The result? Optimism shook, leveraged traders flushed, support levels cracked, and fear spiked. Notably, even with BTC still about 30% off its $126k early-October peak, broad “dip buying” hasn’t really kicked in.

In short, the market has swung from optimism to caution.

And yet, Tom Lee’s BTC call hasn’t budged. In a recent interview, he projected a new all-time high for BTC before the first month of 2026. That brings up the big question: What “exactly” lies ahead for the crypto market?

Looking at recent macro data, his call isn’t completely out of the blue.

Given this context, then, could Bitcoin finally hit its historical Q1 trend this time, with the quarter averaging a 50% ROI and historically ranking as the asset’s second most bullish period?

U.S. inflation hits multi-year lows

Beyond the charts, Q4 surprised on the macro front too.

Even after back-to-back Fed rate cuts, Bitcoin barely moved. The Federal shutdown clearly kept investors cautious, with Open Interest in check. In short, traders weren’t chasing greed, and sentiment stayed muted.

However, now, with the shutdown behind us, November’s CPI report is back in focus. Notably, core inflation has dropped to 2.6%, the lowest since April 2021, while the overall CPI came in at 2.7% versus 3.1% expected.

On the technical side, this puts U.S. inflation close to the Fed’s 2% target.

Notably, the market is already reacting: BTC jumped 2.93% intraday, clearly shrugging off FUD around the BOJ rate hike. Riding this “break”, Ark Invest quickly moved into crypto stocks, hinting at renewed institutional interest.

Overall, the cooling inflation report has given the market a new spark. Will it hold? With Q4’s 23% bleed behind us and most FUD cleared, it looks like Bitcoin could be forming a solid base to repeat its typical Q1 bullish streak.

Final Thoughts

Bitcoin’s Q4 shakeout sets the stage for early 2026, with BTC down 23%, market sentiment cautious, and a potential base forming for a strong Q1 rally.
Cooling U.S. inflation, now near the Fed’s 2% target, is already sparking market moves, signaling early 2026 upside potential.

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