Bitcoin institutions acknowledge the bear market – yet why do 70% believe the price remains undervalued?

A global survey of investors conducted by Coinbase Institutional and Glassnode found that 1 in 4 institutions concurred that crypto has now entered a bear market. Nevertheless, the majority of institutions still believe Bitcoin is undervalued, with most indicating they have maintained or increased their exposure since October.

This inconsistency is significant as it reflects how institutions are currently positioning themselves: exercising caution regarding the market environment, remaining willing to stay invested, and opting to focus their risks on Bitcoin instead of smaller, more volatile tokens that can rapidly decline when leverage is removed.

A bear market label, a value proposition

The market context provided in the report sheds light on why this paradox exists.

October’s deleveraging severely impacted altcoin price movements, while Bitcoin’s dominance saw only a slight change, rising from 58% to 59% in the fourth quarter of 2025.

This stability is crucial as it indicates that the selling pressure was not uniformly spread. The situation primarily affected the long tail rather than signaling a broad rejection of crypto, with Bitcoin behaving like the asset you retain when reducing risk but not exiting the category entirely.

David Duong, the global head of research at Coinbase Institutional, provided a clear way to reconcile the terms “bear market” and “undervalued” in an interview with CryptoSlate.

He pointed out that institutions typically use cycle terminology to characterize market conditions and positioning, whereas “value” refers to a longer-term evaluation linked to adoption, scarcity, market structure, and the prevailing policy environment.

“When institutions evaluate Bitcoin’s worth, they consider factors beyond immediate price trends, including adoption, scarcity, improving market infrastructure, and clearer regulatory environments.

Historically, bear markets often indicate times of tighter liquidity and diminished sentiment, which ultimately create the groundwork for renewed institutional engagement and future expansion.

In other words, when an investor labels this as a bear market (and that’s not our perspective, by the way), they are describing the current phase of the cycle and the prevailing risk appetite.

Positioning may be cautious, liquidity is selective, and price movements could either be declining or fluctuating with a negative bias.

They are discussing the market environment we are operating in now, not where they believe Bitcoin should eventually stabilize.”

The report’s data aligns with this viewpoint, indicating a market that has ceased to reward indiscriminate risk-taking but hasn’t lost interest in the larger assets.

According to Coinbase and Glassnode, perpetual futures were the most adversely affected, with their systematic leverage ratio dropping to 3% of the total crypto market cap (excluding stablecoins).

Simultaneously, options open interest surged as traders hurried to protect themselves against further price declines.

As an institution, if your instinct suggests it’s a bear market, you would seek insurance, lessen liquidation risks, and maintain the desired exposure through mechanisms that won’t force you out at the worst possible moment.

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From perpetuals to protection

The most common error here is to perceive “undervalued” as a unified valuation model that everyone agrees upon.

In reality, both the report and Duong illustrate a collection of assumptions that resembles market structure more than a straightforward discounted cash flow argument.

Begin with what has changed in the derivatives landscape.

The report mentions that BTC options open interest has surpassed that of perpetual futures, with the 25-delta put-call skew remaining positively positioned across 30-day, 90-day, and 180-day expirations, which does not occur in a market that aims to maximize upside through leverage.

It happens in a market willing to stay long but is focused on defining risk.

Duong noted the same transition to options when discussing what institutions did following October’s liquidation reset:

“Institutional interest in expanding on-chain remained after the October reset, but in a measured, multi-venue manner.

Additionally, institutions increasingly expressed their views through options and basis trades, which offer convexity or carry without the same liquidation risk that prompted the October downturn.”

The significance of this statement is crucial, demonstrating that institutions have altered their methods of exposure.

Options and basis trades may not be headline-grabbing strategies, but they represent how a professional portfolio remains active when the market punishes overextension.

On-chain data supports this narrative.

Coinbase and Glassnode indicate that sentiment, as gauged by entity-adjusted NUPL, shifted from Belief to Anxiety in October and remained at that level throughout the quarter. While this is certainly not euphoric, it does not indicate capitulation either.

Graph showing Bitcoin's entity-adjusted NUPL ratio from Jan. 2020 to Jan. 2026 (Source: Coinbase Institutional)

The decline in entity-adjusted NUPL indicates that the market has ceased rewarding optimism, yet is still engaged. This interpretation aligns with a scenario where investors may be cautious about the current phase while still viewing the asset as inexpensive relative to their perception of equilibrium.

The report also highlights that, in the fourth quarter of 2025, BTC that changed hands within three months increased by 37%, while BTC that remained inactive for over a year declined by 2%, which the authors interpret as a distribution phase occurring late in 2025.

Graph comparing Bitcoin's dormant and active supplies from 2016 to 2026 (Source: Coinbase Institutional)

To genuinely consider the institutional perspective, distribution does not necessarily spell doom. It can signify that large holders de-risked into strength, and the market is now attempting to discover the next set of holders who can possess supply without requiring a constant influx of liquidity.

This is where the assertion regarding Bitcoin being “undervalued” transitions from a mere fair-value figure to the belief that Bitcoin has become the sole asset in crypto capable of absorbing significant capital without needing retail support to maintain its structure.

Duong distinctly differentiated Bitcoin’s underwriting framework from that of the broader crypto market:

“In contrast to retail participants, who often concentrate on short-term price fluctuations and market cycles, institutions emphasize long-term value propositions of Bitcoin more than timing.

In this context, Bitcoin is increasingly regarded as a strategic store-of-value asset and macro hedge, rather than merely a speculative token within the larger crypto environment.”

This corresponds with the report’s observations regarding large-cap versus small-cap assets.

Their primary outlook for the first quarter of 2026 is more favorable towards larger-cap tokens, while smaller caps continue to grapple with the repercussions of October.

In light of this, considering Bitcoin as “undervalued” may relate less to it being cheap in isolation and more to its status as the only crypto asset that institutions regard as a sustainable allocation during a challenging regime.

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Liquidity is the true cycle

The second pillar of the paradox is the time perspective.

Labeling something a bear market is typically a judgment made over a shorter timeframe, whereas deeming something undervalued often involves a longer-term assessment. The connection between them is whether institutions still perceive the market as governed by a four-year clock or if they have shifted towards a macro framework where liquidity, rates, and policy play the predominant roles.

Duong posits that while the four-year cycle still serves as a behavioral reference point, institutions do not regard it as a strict model.

He contended that the halving loses significance for institutions once macro variables that influence all risk assets are taken into account:

“In our discussions with these entities, the four-year cycle remains a reference point, but primarily as a behavioral template rather than a rigid model.

They will consider where we stand in relation to previous cycle lows/highs, halving dates, and typical drawdown/recovery patterns, as those levels are crucial for positioning and sentiment.

However, the evidence supporting the notion that halvings causally drive each cycle is weak: we only have four occurrences, and they are significantly influenced by major macro and policy changes (QE, COVID stimulus, etc.).

In our 2026 Outlook, we explicitly argue that the economic significance of the halving is somewhat dubious once liquidity, rates, and dollar dynamics are accounted for.”

The report notes that December’s CPI held at 2.7% and references the Atlanta Fed GDPNow, which projects 5.3% real GDP growth for the fourth quarter of 2025. It outlines a base case in which the Fed implements the two rate cuts (50 bps total) anticipated by fed funds futures, which the authors view as a positive factor for risk assets.

They also mention a cooling job market, with 584,000 jobs added in 2025 compared to 2 million in 2024, attributing some of that moderation to AI adoption.

One doesn’t need to accept every macro inference to understand the current situation: the institutional perspective of Bitcoin as “undervalued” is founded on a framework of macro and liquidity considerations rather than a purely crypto-cycle framework.

The report’s liquidity section makes this clear with a custom Global M2 index that Coinbase asserts leads Bitcoin by 110 days and exhibits a 0.9 correlation with BTC’s movements across various look-back periods. Accepting this context makes the paradox more comprehensible.

Graph comparing Bitcoin to Coinbase's custom M2 money supply from September 2024 to January 2026 (Source: Coinbase Institutional)

You can observe the current regime, recognize the impacts from October, see a market still in search of downside protection, and conclude that Bitcoin remains in a favorable long-duration setup if policy and liquidity behave as expected.

Only then does “bear market” become a characterization of present market behavior, and “undervalued” transforms into a statement regarding how that market could reprice when macro conditions become more favorable.

What could undermine this thesis?

Duong dismissed the notion that a typical pullback would suffice and instead pointed to a combination of macro and on-chain factors that would need to fail simultaneously:

“Institutions are not solely focusing on price; they are anchoring on macro liquidity conditions and on-chain market structure.

The clearest indication that they might be mistaken wouldn’t be a standard pullback, but a failure of the fundamental drivers of that thesis.

In other words, it would not depend on a single signal, but rather a convergence of various signals.

For instance, if macro liquidity conditions were to turn significantly against risk assets, if on-chain accumulation metrics were to reverse, if long-term holders were to distribute during weakness, and if institutional demand indicators were to trend consistently negative, that combination could significantly challenge the perception that Bitcoin is undervalued or structurally supported at this time.”

The survey results indicate that institutions are divided regarding the market’s current phase, but they agree on Bitcoin’s relative attractiveness.

The report’s visuals illustrate how this belief manifests in actual positioning: diminished dependence on fragile leverage, increased utilization of options for defined risk, and a market that has cooled without fully collapsing.

Duong’s insights provide a cohesive framework that suggests “undervalued” is a perspective rooted in liquidity, structure, and time horizon, rather than merely a market sentiment check.

Whether institutions are ultimately correct depends less on winning a short-term debate about cycle labels and more on whether that framework remains intact when the next macro challenge arises.

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