Leverage Cleared, Buy Orders Absent: Bitcoin Remains Stuck in the Waiting Room for a "Final Drop"

Original Authors: Chris Beamish, CryptoVizArt, Antoine Colpaert, Glassnode

Original Translation: Chopper, Foresight News

TL;DR:

• The AVIV index Z-score fell to -1.09, before rebounding slightly to -1.06, indicating that the current price has entered a deep oversold territory relative to the cyclical average. The price failed to see an effective rebound at the low, and market panic sentiment continues to spread.
• Over 95% of short-term holders are in a loss position. The proportion of profitable supply held by short-term holders has only slightly recovered to 3.3%, far below the four-year average of 55%. The market fundamentals are fragile and highly susceptible to external shocks.
• The Short-Term Holder Spent Output Profit Ratio (STH-SOPR) Z-score hit a low of -1.86, just 0.14 standard deviations away from the -2 critical threshold for deep panic selling. This indicates increasing market stop-loss behavior, but it has not yet reached the selling pressure intensity historically capable of generating a sustained rebound.
• Institutional demand in the US has significantly cooled. During Bitcoin's pullback towards $60,000, the Coinbase premium consistently remained in a discount zone, reflecting a lack of active institutional buying on the spot market.
• The pace of Bitcoin accumulation by corporate treasuries has dramatically slowed. Since June, the net daily institutional buying volume has fallen from a peak of over $500 million to nearly zero, removing another major source of market support.
• After Bitcoin broke below a key support level, the market experienced a massive deleveraging event, with a concentrated liquidation of heavily leveraged long positions, clearing out excessive speculative positions.
• Implied volatility surged significantly after Bitcoin broke its range. The volatility risk premium has risen sharply, with the uncertainty priced into the options market far exceeding the risk level implied by recent actual price movements.
• Volatility skew indicators across all tenures surged, indicating a significant increase in demand for downside protection instruments, with traders paying a higher premium for put options.
• Market trading is primarily defensive, with the largest negative gamma exposure concentrated around the $65,000 level, which is not far from the current spot price.

Macro Market Insights

The US Dollar Index (DXY) closed at 100.01, rising 0.8% for the week and 2.1% over the past 30 days. The sustained strength of the US dollar indicates a tightening of global liquidity over the past month. The US 10-year Treasury yield held at 4.53%, while the 2-year yield was 4.14%, resulting in a yield spread of 0.39%. The yield curve shape suggests the US economy is in the late cycle phase, and the Federal Reserve has yet to make substantial adjustments to its monetary policy.

Due to adverse macro factors, Bitcoin fell 7.5% this week to a current price of $61,700. After a period of divergence, the negative correlation between a strong US dollar and under-pressure crypto assets, established during 2022-2023, has re-emerged. With the DXY firmly above the 100 mark and the 10-year yield breaking above 4.5%, historical patterns suggest that such a combination of interest rates and dollar strength typically compresses speculative premiums in risk assets.

For Bitcoin to stage a sustained rebound, one of two conditions needs to be met: the DXY breaks effectively below 99, or the 10-year Treasury yield falls back to around 4.2%. Neither condition has been met yet.

On-Chain Data Analysis

Valuation in Deep Oversold Territory

The previous analysis suggested that May's rally was a bear market rally. The Short-Term Holder cost basis fell below the Real Market Mean for the first time since January 2022, a signal indicating the market has entered the late phase of a bear market. This installment continues to interpret the subsequent pullback, including the price drop to $59,000 and the subsequent fragile consolidation.

We use the AVIV (Active Investor Value Deviation) metric to gauge the extent to which the current price is oversold relative to the cyclical average. This metric compares the spot price against the Real Market Mean (the aggregate cost basis of active investors, excluding miners' holdings). Its four-year Z-score measures the deviation of the price from this baseline. A Z-score of 0 is the boundary between valuation premium and discount.

The current AVIV ratio is 0.80, corresponding to a Z-score of -1.06, down to a low of -1.09 over the past two weeks. Current valuations are in a deep discount region within the historical range. The price's failure to mount an effective rebound from the cycle lows over the past week is sufficient evidence of lingering market panic.

New Entrants Universally Trapped

Building on the market's discount state, we analyze the situation of recently entered capital separately. The Short-Term Holder Market Value to Realized Value (STH-MVRV) ratio compares the spot price to the cost basis of short-term holders. A value below 1 indicates this cohort is, on aggregate, in an unrealized loss position.

The metric recently hit a low of 0.81 before slightly recovering to 0.83. This implies new investors are holding an average unrealized loss of 17% to 19%. It also confirms that the dense cost basis cluster formed between $78,000 and $82,000 during the May rally is now widely underwater, consistent with the previous assessment of "pressure on new entrants."

A brief stabilization at a low price is a common pattern in downtrends. After the most severely underwater investors complete their initial round of passive selling, the remaining market participants tend to adopt a wait-and-see approach. Whether this consolidation phase ultimately forms a valid bottom or serves as a bear flag depends on whether new buying demand emerges at the current price level.

95% of Short-Term Holders in Loss

To further assess the pressure on short-term holders, we reference the Short-Term Holder Supply in Profit metric. This metric measures the proportion of short-term supply that is in profit, gauging the scope of losses, as opposed to metrics measuring the magnitude of losses.

This metric recently hit a low of just 0.6% and has only slightly recovered to 3.3%, far below the four-year average of 55%. In practical terms, over 95% of short-term holders are currently in a loss position. Such a degree of loss historically represents a significant capitulation zone, where new investors are under widespread stress, making the market structure fragile and highly susceptible to any negative external factor.

The near-universal losses across the market, without significant signs of improvement in related metrics, sufficiently indicate that the current sideways movement is merely a pause in selling pressure, not the completion of a market bottom formation.

Market Approaching Panic Selling Threshold

Beyond unrealized loss data, the actual selling behavior of investors further confirms the severity of the current market situation. Using the four-year cyclical average as a baseline, we evaluate the intensity of realized losses among new entrants via the Z-score of the 7-day moving average Short-Term Holder Spent Output Profit Ratio (STH-SOPR).

The current Z-score for this metric is -1.57, with a two-week low of -1.86. This is only 0.14 standard deviations away from the historical deep panic selling threshold of -2.

Currently, loss-making selling among short-term holders is becoming more frequent and accelerating, corroborating the single-day total realized loss of $1.35 billion noted in the previous analysis and the deep unrealized losses reflected by the STH-MVRV. However, the ultimate panic selling event historically capable of catalyzing a medium-to-long-term rebound has not yet materialized.

The market is in an awkward middle state: the scale of realized losses is sufficient to confirm the depth of the bear market, but it has not yet reached the standard for complete selling exhaustion and the formation of a solid bottom.

Off-Chain Market Insights

Coinbase Premium Disappears

The Coinbase Premium Spread, measuring the difference between the Coinbase spot price and the Binance perpetual contract price, serves as a crucial window into US institutional demand. A premium on Coinbase indicates institutions are actively buying spot Bitcoin, pushing the platform price higher than the offshore derivatives market price.

The market dynamics have completely reversed in recent weeks, with the spread consistently in a discount territory. During Bitcoin's decline towards $60,000, buying interest in the US spot market has broadly cooled. The typical buy-the-dip behavior seen in previous corrections has not materialized this time. Institutions are generally on the sidelines, removing another crucial source of market support.

Corporate Treasury Demand Cools

Between April and May, continuous accumulation by corporate treasuries was a core source of market support, with multiple instances of daily net purchases exceeding $500 million. However, since June, this demand has weakened significantly.

As Bitcoin corrected from above $75,000 to $60,000, the peak daily net buying volume by corporate treasuries has drastically shrunk to a fraction of its former level. While on aggregate entities are still net buyers, the reduced accumulation pace suggests a more cautious risk appetite within this cohort. In an environment of generally low market sentiment, marginal buying pressure has further decreased.

Comprehensive Deleveraging Below $70,000

The liquidation heatmap shows a significant concentration of leveraged long positions between $64,000 and $70,000. During Bitcoin's rapid decline last week, long positions in this range were liquidated en masse. This cascade of liquidations briefly pushed the price below $60,000 before finding support.

The liquidity of long positions near the current range has been largely exhausted, and the market has undergone a significant deleveraging event. Compared to data from a week ago, the current leverage structure is healthier. Much of the excessive speculative leverage built up during the recent consolidation range has been largely cleared out.

Implied Volatility Surges Significantly

After Bitcoin broke out of its multi-month consolidation range, the entire volatility surface underwent repricing. As the spot price approached February lows, demand for options instruments across the board increased.

The response was most dramatic in short-term volatility. The 1-week at-the-money implied volatility (IV) briefly spiked above 60% before settling back around 50%. The 1-month IV increased from approximately 34% to 45%. Longer tenures followed suit, with the 6-month IV rising from around 40% to 44%.

This volatility surge represents a comprehensive reassessment of future uncertainty, not just a short-term emotional disturbance. Although volatility has retreated from its peak, market demand for option hedging tools remains robust. Even with a brief stabilization in spot prices, traders are still willing to pay a premium for risk protection. This downturn has fundamentally altered market expectations for volatility, driving up hedging costs across all tenures and keeping market risk aversion elevated.

Volatility Risk Premium Remains Elevated

Comparing implied volatility (IV) to realized volatility (RV) after the significant IV surge reveals that the future price fluctuation priced by the options market is still higher than the actual recent volatility of the spot price.

The 1-month IV rose from around 35% to 44%. During this decline, the 1-month RV also increased from 27% to 39%. While both metrics rose together, the increase in IV was more aggressive, keeping the volatility risk premium positive.

After the price broke below a key support level, the market urgently repriced risk, causing the volatility spread (IV-RV) to briefly expand to 10 volatility points. Although the spread has narrowed somewhat, options prices remain higher than what is justified by actual price fluctuations. This also reflects a widespread market expectation of continued significant volatility in the future.

The future uncertainty priced into the options market far exceeds the risk implied by recent actual price movements, hence the volatility risk premium remains persistently high.

25-Delta Volatility Skew Surges Significantly

Against the backdrop of broadly higher volatility premiums, the volatility skew metric clearly shows the direction of capital flow. During Bitcoin's breakdown and subsequent drop towards February lows, traders heavily concentrated on buying downside protection instruments.

Volatility skew, calculated as put option volatility minus call option volatility, is positive when puts are priced higher than equivalent calls. This downturn caused skew across all tenures to rise in unison: the 1-month skew climbed from around 11% to 24%, while the 3-month and 6-month skews rose to 18% and 14%, respectively.

The reaction was most intense in short-term metrics, with the 1-week skew briefly approaching 30%. During the sell-off, demand for short-term downside hedging surged. If the rise in IV signifies market-wide risk alertness, then the volatility skew points distinctly in a single direction – capital is concentratedly positioned for downside hedging.

As market conditions continue to weaken, the demand for downside protection has increased significantly, and traders are paying ever-increasing premiums for put options.

High Gamma Exposure Concentration Near $65,000

Beyond options prices, gamma exposure helps identify the strike prices where options market makers' hedging activities have the most significant impact on price movements.

The current market trading style is predominantly defensive. Over the past seven days, put option volume constituted 32.4% of total options volume; in the last 24 hours, this ratio has further increased to 35.9%. Even after a significant sell-off, market trading remains focused on buying downside protection.

This trading behavior is directly reflected in the gamma exposure structure: the largest negative gamma exposure is currently concentrated at the $65,000 strike, with substantial negative gamma also distributed across the $59,000 to $70,000 range. Bitcoin's current price is around $62,000, placing the spot price just below the zone of maximum short-term negative gamma. Positive gamma exposure is primarily concentrated in the higher range of $76,000 to $82,000.

Defensive trading dominates market makers' positioning, resulting in the market's largest negative gamma region sitting around the $65,000 level, which is very close to the current spot price.

Summary

The current market exhibits classic characteristics of a late-stage bear market pullback: recent entrants are deeply underwater, realized losses remain at elevated levels, and multiple core buying forces are weakening.

Bitcoin's decline towards $60,000 triggered a massive deleveraging event, leading to a concentrated flush of speculative positions. While leverage levels have returned to more reasonable levels, the spot market has consistently failed to attract effective new buying demand.

The options market maintains a defensive posture, with elevated implied volatility, strong demand for downside hedging, and market makers' key exposures tightly aligned with the current spot price. Coupled with declining institutional participation and reduced corporate treasury accumulation, this sufficiently indicates persistently low market risk appetite.

Synthesizing all data, the market appears to be gradually entering a phase of deep panic selling. Although market leverage has been largely cleared and valuation metrics have fallen deep into historically discounted territory, the incremental buying demand historically associated with the formation of a solid bottom has yet to appear.