Glassnode: Cryptocurrency Market Enters Late Stage of Bottom Formation

Original Authors: CryptoVizArt, Frederik Theissen, Glassnode

Original Translation: Luffy, Foresight News

Bitcoin's price has remained below both the Realized Price and the Short-Term Holder Cost Basis for five consecutive months, placing it in a deeply undervalued zone.

The proportion of total realized on-chain losses attributed to Long-Term Holders has surged to 43%. Daily realized losses from this cohort peaked at $280 million, the highest level since December 2022. While the outflow from spot ETFs has moderated, it remains in a net monthly outflow state. The average daily trading volume of ETFs has stabilized between $650 million and $950 million, approximately 80% lower than the peak levels seen during the October 2025 rally, indicating that institutional buying demand has yet to stabilize.

Derivatives positioning has shifted to cautiously bullish, with the Put/Call Ratio hitting a year-to-date low. However, the options volatility surface still maintains a defensive premium, and the spot price remains significantly below the Max Pain price. The market appears to be in the later stages of a bottoming process. A sustained decline in selling pressure from Long-Term Holders is a crucial prerequisite for a potential trend reversal and recovery.

Macro Overview

Crude Oil Surge Weighs on Risk Assets

Over the past seven trading days, WTI crude oil has surged by a cumulative 7.9%, with most of the gains concentrated recently. This followed reports of the expiration of the US-Iran Memorandum of Understanding, a shock that reverberated across all asset markets. Bitcoin briefly rallied up to 9.4% this week but has since retreated to a weekly gain of 5%. The S&P 500 and Euro Stoxx indices have both turned negative, with European equities leading the decline in global risk assets. Currently, Bitcoin's trajectory is highly correlated with that of other risk assets.

Liquidity Environment: Intensifying Bull-Bear Contradictions

Amid the external shock from crude oil, the market liquidity environment presents a fragmented picture. The US broad money supply M2 has climbed to a historic high of $22.8 trillion. Historically, periods of broad monetary expansion tend to boost market risk appetite. However, the Federal Reserve's balance sheet continues to shrink, currently $2 trillion below its 2023 peak. These two liquidity signals create a strong hedge: broad money supply is rising, but quantitative tightening persists, with real interest rates hovering around 1%. This keeps the opportunity cost of holding non-yielding digital assets high. The macro window of opportunity hasn't completely closed, but neither has it formed a clear accommodative support.

On-Chain Data

Five Months of Deep Undervaluation

Over the past week, Bitcoin has rebounded from $58,300 to $64,400, showing some short-term price recovery. However, the price remains significantly below the Realized Price of $76,600 and the Short-Term Holder Cost Basis of $72,200. The market can only exit this deeply undervalued zone if the price reclaims these two key levels; otherwise, the landscape remains susceptible to further declines triggered by negative external catalysts.

The duration of this discounted price action is noteworthy. Since early February 2026, the price has been trading below both the cost basis of active investors and the breakeven point of recent buyers. This has lasted nearly five months, marking one of the longest periods of deep discount in Bitcoin's history.

This prolonged discount zone has facilitated significant capital rotation. New capital continuously accumulates at prices below the cost bases of previous buyers and the entire active market. Historically, this process forms the foundation for cyclical market bottoms, offering long-term value for investors. While various indicators suggest the bottoming process is in its later stages, the possibility of a retracement to $53,000 cannot be entirely ruled out.

Concentrated Stop-Loss by Long-Term Holders from High Levels

The market is actively constructing a cyclical bottom. The core question now is identifying the primary source of downward selling pressure. The Profit/Loss Realization Ratio between Long-Term and Short-Term Holders measures the allocation of total on-chain realized profits and losses between these two cohorts, clearly showing the scale of each group's contribution.

Since Bitcoin's price fell below the Realized Price, the 30-day moving average of realized losses from Long-Term Holders has climbed from 15% in early February 2026 to its current 43% level. The stop-loss selling pressure generated by underwater positions in this group has become the most dominant bearish force suppressing the price.

Most of these investors entered near the cyclical highs. After enduring a multi-month deep retracement, their holding conviction has gradually eroded, leading to a concentrated exit. This capital structure directly explains why each rebound attempt is met by heavy selling from deeply entrenched holders, making it difficult for the price to sustain a foothold above the current range.

Stop-Loss Selling Pressure Shows No Signs of Fading

Realized losses by Long-Term Holders have become the market's main downward pressure. The next key observation point is whether this selling pressure begins to subside.

The entity-adjusted Realized Loss indicator for Long-Term Holders (30-day smoothed moving average) measures the loss amount generated by sales from addresses holding coins for over 155 days, filtering out internal transfers to accurately reflect genuine stop-loss exit behavior. This indicator recently spiked to a daily peak of approximately $280 million in realized losses, the highest level since December 2022. This marks the second major wave of Long-Term Holder capitulation in the current bear cycle.

A key difference is that after the first peak in stop-loss activity, selling pressure declined in phases. However, the current wave of selling has yet to show a contraction in scale. A clear downtrend in this indicator is a fundamental prerequisite for the market to transition towards a bull market. In the coming weeks to months, the trajectory of this metric will be the core signal for determining whether the market has truly completed its distribution phase.

Off-Chain Market

ETF Outflows Slow, But Trend Not Reversed

Shifting from on-chain to off-chain markets, spot ETF capital flows provide a direct view of institutional behavior. The 30-day moving average of ETF net flows smooths out daily volatility in daily net capital flowing into or out of US spot Bitcoin ETFs, revealing the underlying trend in institutional positioning.

Since mid-May 2026, this indicator has shifted to a monthly net outflow zone. Daily outflows peaked at $193 million in early June and have since moderated to a net outflow of $88.9 million per day. The slowing pace of outflows is a mildly positive sign, but the market continues to experience monthly capital drain, and institutional buying demand has not yet stabilized. Only when capital flows consistently narrow to a balanced range can we anticipate an expansive upside in the short term.

Institutional Trading Volume Remains Depressed

Beyond net flow data, the trading volume of US spot ETFs can help gauge the degree of institutional confidence recovery. The 30-day moving average of average daily ETF volume currently fluctuates between $650 million and $950 million. This level is comparable to the Q4 2024 period but is roughly 80% lower than the average daily peak of $4.4 billion recorded in October 2025.

Current volume levels only represent baseline institutional participation. Compared to cyclical peaks, activity remains extremely depressed, indicating that mid-to-long-term bullish conviction among ETF investors has not substantially returned. Only a sustained increase in daily average volume, coupled with a continued narrowing of net capital outflows, can confirm a revival in institutional demand. Until both indicators improve in tandem, the off-chain data corroborates the on-chain indicators: the market remains predominantly in a bearish structure.

Derivatives Market

Short Squeeze, Positioning Turns Cautiously Bullish

Beneath the weakening risk sentiment, derivatives positioning has undergone a notable shift. The Put/Call ratio for open options interest has dropped to 0.56, the lowest level of 2026, meaning the market currently holds about two call options for every put option. Options flow data confirms this trend. Two weeks ago, during Bitcoin's second dip to support levels, there was a frenzy of put buying for hedging, causing the Put/Call volume ratio to spike sharply. However, as call order flow has since returned, this ratio has rapidly declined, even though the spot price has only partially recovered its losses.

The perpetual swap funding rate also corroborates the shift in positioning. The average funding rate for perpetual contracts has remained well below the 0.01% long-short equilibrium line, far from levels indicative of crowded long positions. The derivatives market has completed a cleanup of short-side risk. In the face of external bearish shocks, positioning has broadly turned cautiously bullish, a complete reversal from the crowded short positioning observed before the significant sell-off.

Options Surface Still Prices Downside Risk

While overall positioning leans bullish, the options volatility surface tells a different story. The 25-delta skew indicator, which measures the premium for downside protection relative to upside gains, remains in premium territory across all tenors. Each drawdown cycle this year has pushed this premium higher. The indicator surged to 24% in late June, marking the strongest defensive sentiment in front-month contracts since the February sell-off. Despite the market's overall bullish lean, traders are still willing to pay a premium for downside hedging instruments.

Spot Price Deviates from Max Pain

Beyond positioning and skew, the relative position of the spot price to the options market structure provides further clues. The current spot price is approximately 6% below the aggregate market Max Pain price of $66,000. The Max Pain price is the strike price where the most open contracts expire worthless; prices often gravitate towards this level before expiry.

This week's decline has further widened the gap between the spot price and the Max Pain price. However, the deviation is far less extreme than the one seen during the February sell-off and sits roughly in the middle of the 2026 trading range. Throughout the year, the Max Pain price has consistently acted as a gravitational center for price action, with the spot price oscillating around it, rarely deviating significantly for long periods. If the price stabilizes above $66,000, the short-term signal turns bullish. Conversely, a further widening of the gap would reinforce the overall defensive trading sentiment observed in the options market.

Cost of Crash Hedging Continues to Decline

Signals from skew and positioning may show divergence, but the absolute cost of hedging downside risk presents a clear trajectory. Following the market's modest rebound, the overall pricing of the 1-month volatility curve's put side has shifted lower. The implied volatility for put options at the 5% below spot level has dropped significantly. The lowest pricing points on the volatility curve are now concentrated in far-dated call options.

While defensive sentiment persists overall, the absolute cost traders pay for downside hedging has clearly decreased. This trend becomes more apparent over a longer timeframe: the volatility premium driven by extreme put hedging demand during the February and June sell-offs has gradually faded as July progresses. The DVOL volatility index has dropped to a 12-month low, pushing the market into a low-volatility regime. Although cautious sentiment still dominates the landscape, hedging demand is steadily waning.

Summary

Synthesizing data from on-chain, off-chain, and derivatives dimensions, the market clearly exhibits characteristics of a late-stage bear market.

On-chain data shows a prolonged five-month cycle of deep undervaluation. Daily stop-loss realization by Long-Term Holders has reached $280 million, indicating significant capital transfer. However, a sustained decline in this stop-loss metric is a necessary condition for an effective trend reversal.

Off-chain data indicates ETF capital outflows have narrowed from their June peak, but the monthly net outflow persists. Average daily trading volume is 80% lower than the October 2025 peak, reflecting depressed institutional bullish confidence.

From a derivatives perspective, market positioning has cautiously turned bullish, with the Put/Call Ratio hitting a year-to-date low. However, the options surface and volatility skew continue to price in downside risk.

Considering all indicators, the foundational conditions for a market bottom are in place. However, the core signals confirming the actual bottom have not yet emerged. For a subsequent trend reversal, three key conditions need to be met: a sustained cooling of stop-loss pressure from Long-Term Holders, stabilization of institutional capital flows, and a price recovery decisively above the Realized Price. Only upon fulfilling these conditions does the probability of a transition to a bullish cycle significantly increase.