After months of climbing to unprecedented heights, the momentum of bitcoin has slowed, with its price hovering above $111,000, reflecting a 2% increase over the past week, as per CoinDesk market data. This change follows a recent peak when bitcoin surpassed $126,000, indicating a faltering momentum below significant cost-basis levels. Analysts are witnessing a withdrawal of capital from both the spot market and exchange-traded funds (ETFs), compounded by a shift towards defensive options positions.
In a recent analysis, Glassnode identified a pattern of repeated breakdowns below key price quantiles, suggesting market exhaustion. Concurrently, CryptoQuant echoed these sentiments, pointing to declining realized profits and a decrease in exchange inflows as further indicators of market strain. Both firms proposed that while capital remains within the cryptocurrency space, it is transitioning from spot to derivatives markets, where volatility has become the primary focus for traders.
According to Glassnode, the cost basis for short-term holders stands at around $113,000, a crucial level separating potential market recovery from deeper consolidation. A decline below this threshold could mean that recent investors are facing losses, undermining confidence and possibly forcing weaker participants out of the market.
Long-term holders, on the other hand, have been actively selling into strength, offloading more than 22,000 BTC daily since July. This trend is expected to further dilute momentum and challenge any prospects for sustained recovery. If bitcoin cannot reclaim the $113,000 mark, Glassnode warns of a potential slide towards the $108,000 to $97,000 range, where a considerable portion of supply typically becomes unprofitable.
Data from CryptoQuant reinforces these views, noting a decline in ETF inflows after a period of accumulation, alongside an uptick in exchange reserves, which suggests that traders are positioning themselves to sell amidst volatility rather than accumulate. This shift has been characterized as a rotation of capital within the crypto ecosystem rather than a complete exit, with liquidity flowing into futures and options markets where volatility premiums have spiked.
This trend is reminiscent of structural changes observed in previous years, signaling a shift from spot market confidence to speculative leverage. Options data indicates a growing sense of caution, as record-high open interest shows that traders are increasingly utilizing derivatives to hedge their positions instead of speculating on bullish trends, with rising demand for put options across various maturities.
Glassnode notes that market makers are actively hedging their positions, which has a dampening effect on short-term price movements, as they sell into rallies and buy during dips to maintain a delta-neutral stance. The combination of heightened volatility and strong put demand is exerting upward pressure, capping rallies and stunting broader market confidence.
Currently, the market finds itself in a state of limbo, where price actions are driven more by risk management strategies than by bullish sentiment. CryptoQuant views these movements as a consolidation phase rather than a downward spiral, with capital remaining within the cryptocurrency sphere as investors await clearer macroeconomic indicators and policy signals before making significant new investments.
Moving forward, both Glassnode and CryptoQuant suggest that a genuine recovery will require renewed demand in the spot market and calmer activity in derivatives, contingent on factors such as potential Federal Reserve rate cuts or a revival in ETF inflows. For the moment, bitcoin appears to be taking a breather, trading in a manner more reflective of market rotation than an outright revolution, suggesting that even in a volatile environment, traders may eventually tire of navigating fear-driven markets.
