Bitcoin has dipped below crucial cost-basis levels, with declining spot demand and weaker Exchange-Traded Fund (ETF) inflows contributing to the situation. This trend is mirrored in the derivatives market, which is experiencing falling open interest and reduced funding rates, leading traders to adjust their positions sharply in anticipation of potential declines. The increase in implied volatility and significant demand for put options underscores a market sentiment driven by caution and a desire for protection.
Breaking the short-term holder (STH) cost basis and moving below the −1 standard deviation band has placed recent buyers in a precarious position. The $95K–$97K range has become a significant resistance zone, and reclaiming this level could be vital for stabilizing the market structure.
Recent data indicates a pronounced weakness in spot demand, particularly highlighted by a negative trend in U.S. ETF inflows. The lack of new bids from traditional finance allocators contributes to an environment where the appetite for Bitcoin is dwindling. This decline in demand is reflected in a decrease in speculative leverage, as futures open interest and funding rates have also dropped to cycle lows across the top 500 cryptocurrencies.
The options market has responded to this decline with dramatic shifts, as traders have rapidly reassessed risk levels. The rise in implied volatility suggests a stronger demand for downside protection, with a notable increase in trading activity surrounding put options. This behavior indicates that market participants are opting for caution over risk-taking, evidenced by the striking demand for puts at key strike prices, such as at $90K.
Historically, periods when investors realize losses have led to panic selling and have required time for the market to heal. Currently, the intensity of selling is reaching levels reminiscent of prior significant market stress events, such as the FTX collapse, with short-term holder losses hitting $523 million per day. This high rate of loss realization warns that unless stronger demand materializes, the current market may face prolonged weakness.
The absence of significant ETF demand further emphasizes the current market’s challenges. Flows remain negative, signaling hesitance from traditional finance participants to re-enter the market amid ongoing price pressures. Additionally, futures positioning continues to contract, indicating a cautious approach among traders as they avoid accumulating leverage in this environment.
Volatility remains a critical concern, with the DVOL index indicating expectations of larger price movements ahead. The volatility measures reflect a market grappling with heightened uncertainty, driven by macroeconomic factors and the lack of robust demand. The upcoming FOMC meeting presents a crucial moment that could influence market dynamics.
Overall, Bitcoin is navigating through a challenging landscape marked by a retreat in speculative interest, negative sentiment in the derivatives space, and suppressed spot demand. The success of any recovery depends on whether fresh demand can emerge around key cost-basis levels or if the current market fragility will evolve into a deeper corrective phase. Despite the negative sentiment surrounding Bitcoin’s performance, there remains hope that the situation could stabilize with renewed market interest, potentially inspiring a shift toward recovery and growth.