Bitcoin (BTC) Faces Pressure as Market Demand Weakens and Derivatives Reflect Caution

Bitcoin has recently dipped below critical cost-basis models, reflecting a downturn in spot demand and ETF flows, as reported by Glassnode. This shift mirrors a broader market trend as derivatives markets show signs of increased caution, with falling open interest and cycle-low funding rates.

Bitcoin’s Market Struggle

The cryptocurrency giant, Bitcoin, has struggled to maintain its earlier price levels, slipping below $97,000 and briefly touching $89,000. This marks a new local low, pulling its year-to-date performance into negative territory. The $95,000 to $97,000 range now acts as a key resistance, and reclaiming it could indicate a potential market recovery.

On-Chain Insights

Bitcoin’s dip below its short-term holder cost basis has led to increased panic selling. The 7-day EMA of realized losses has surged to $523 million daily, the highest since the FTX collapse. This intense selling pressure highlights the market’s current fragility, with a significant portion of recent buyers facing losses.

If Bitcoin fails to hold the active investors’ realized price of approximately $88,600, it could signal a further bearish momentum, potentially leading to a deeper market correction.

Derivatives Market Reflects Caution

The derivatives market is also showing signs of caution. Futures open interest has declined, indicating a reduction in speculative activity. Traders are unwinding risk rather than adding exposure, which underscores a cautious stance among market participants.

Implied volatility in the options market has risen sharply, reflecting increased demand for downside protection. The skew remains negative, with traders paying premiums for puts, indicating a defensive positioning regime.

ETF Flows and Market Sentiment

US spot ETF flows remain negative, highlighting a lack of demand from traditional financial allocators. This absence of ETF inflows suggests a significant pillar of demand has yet to re-engage, leaving the market vulnerable to further downside pressure.

The overall market sentiment appears cautious, with a preference for protection over speculative exposure. As traders prepare for potential volatility, the market’s path forward will depend on whether demand can stabilize around key levels or if the current fragility leads to a deeper bear market.

For the complete analysis, visit the original report on Glassnode.

Image source: Shutterstock