Bitcoin's Shallowest Bear Market: Entire Market in Hibernation, Spot Volume Hits 2019 Lows

Original Author: glassnode

Original Translation: AididiaoJP, Foresight News

Treasury yields have surpassed crypto carry trades for only the second time, and the downstream market has subsequently fallen silent: spot trading volumes hit their lowest since 2019, exchange fund flows have nearly stalled, and the sell-side of the order book has significantly thinned. This pullback is extremely shallow in magnitude, and its duration has yet to match the clocks of previous bear markets.

Summary

• The bond market has stopped pricing in rate cuts and has instead started pricing in rate hikes.
• Treasury yields have exceeded crypto carry trades, explaining why marginal buyers have chosen to park in cash.
• Spot prices are resting on the heaviest cost-basis shelf on the chart, with a breakeven line at $69,000 above.
• By depth metrics, this is the shallowest bear market on record, and its duration has not yet reached the levels of previous cycles.
• Exchange fund flows, spot trading volumes, and ETF buying have all fallen silent simultaneously.
• Hedging positions were sold at the rally highs and have started flowing back within a week.
• Buy orders are waiting well below the spot price, while the sell-side has thinned. The Vector reading is Risk Off.

Macro Insights

Leadership Ceded

Last week, Bitcoin outperformed stock indices, absorbed the oil shock (equity markets barely moved), and both closed higher. This relative strength has faded this week. Bitcoin declined throughout the week while US and European stock markets treaded water. The turning point came on Monday: since that trading session, Bitcoin has failed to keep pace with equities. Oil also gave back last week's gains, becoming the weakest performer among the four.

One week of relative weakness does not constitute a regime change. But it does take away one of the few supports from the June recovery — the period when Bitcoin was bought on days when equity indices didn't move.

The Bond Market Is Already Pricing in Rate Hikes

The FOMC makes a decision today, but the bond market has already made up its mind. The 2-year Treasury yield (the cleanest read on policy path) has been above the federal funds rate since April, and the gap between them is the widest since November 2022. This is not pricing that is waiting for a rate cut; it leans toward the next move being a hike.

A rate cut today would catch most positions off guard and would naturally align with the tame core inflation data highlighted in last week's report. Market reaction matters more than the decision itself: if a positive surprise still cannot hold the bid, that says more about the absence of marginal buyers than the decision itself.

Where Have the Buyers Gone?

The US dollar has strengthened continuously since May, and Bitcoin's digestion of this dollar rally is among the worst on record. In typical precedents since 2015, Bitcoin would have risen by this stage. This time, it is deeply in negative returns, with only 3 of the last 20 similar rallies being worse.

The second channel is more mechanical. The three-month futures basis (the cash-and-carry trade yield anchoring institutional participation in the crypto market) has been below the 2-year Treasury yield since February. Historically, only one period has lasted this long — from August 2022 to January 2023, ending with the cycle bottom.

When Treasury yields exceed the basis, there is little reason for desks providing leverage, depth, and volume to remain here. Many of the on-chain and off-chain phenomena detailed later can be traced back to this spread.

On-Chain Insights

Standing on the Heaviest Shelf

Bitcoin is trading within a single dense cluster on the cost-basis distribution chart — roughly the $62,000 to $68,000 range, where more coins have changed hands than at any other level on the chart. This range is split almost evenly. Half belongs to short-term holders who bought during this year's decline; half belongs to long-term holders who have ridden it all the way through.

The long-term holder half represents patient supply, typically behaving like a floor. The short-term holder half is more sensitive, and most are in unrealized loss, making them the supply that moves first on rallies. Above this, the short-term holder cost basis at $69,000 remains the key level for the next leg; further above, the real supply wall is the barrier set by long-term holders between $83,000 and $86,000.

Shallow in Magnitude, Not Yet in Time

Two metrics measuring this bear market draw the same conclusion. Relative to the 200-day moving average, no previous bear market has pushed the price so close to the trend: the deepest discount of this cycle is still far shallower than the mildest bear market of the past. Measured by the drawdown from all-time highs, the picture is similar — the bottoms of previous bear markets were all well below the trading range of this cycle so far.

Looking at the 200-day perspective, time tells the other half of the story. Bitcoin has spent about three-quarters of the time below this average compared to typical previous bear markets, most of which ran longer. Such a mild drawdown, which has not yet completed the time required in previous cycles, argues more for patience than for rushing to call a bottom — especially for those still operating on the four-year cycle map.

Exchange Outflows Slow

Both deposits and withdrawals on exchanges are thinning. Both ends are currently running at roughly the same moderate pace, representing one of the quietest combined flows in the past three years, well below the 2023-2025 norms. Balances tell a similar story from the other side: they have slowly recovered from their April lows and have been essentially flat since the start of July.

This reads more as apathy than distribution or accumulation — a pattern that often appears in the quiet middle phase of a bear market. So little on-chain movement means there is little ready supply to absorb demand once it changes.

Off-Chain Insights

ETF Buying Goes Idle

US spot ETF flows turned positive in mid-July, only to quickly reverse within a week. Net inflows are once again slightly negative. Compared to the redemption waves of June and early July, the current outflows are almost negligible.

Institutional channels are neither selling off nor driving prices up. After the flip last week, what truly matters is persistence rather than size, and persistence has not materialized.

Euphoria at the Highs

The cost of downside protection collapsed to near zero on July 21 — the same day Bitcoin hit a local high after bouncing from its June low. Hedging positions were sold into the top. The deleveraging that accompanied the rally left the market directly exposed to the subsequent decline.

This week has been costly for those positions. Skew has recovered from its lows, and flows have shifted accordingly: the put/call volume ratio, after hitting a year-to-date low, surged as the price fell; perpetual futures funding rates have been pinned below neutral for the entire month.

Open interest paints a more cautious picture. The put/call open interest ratio appears to have bottomed around the same time but has barely left that low. This is more about repositioning than a change in stance, until the structure of open positions follows suit.

Budget Shifts to Puts

Options buyers paid for upside during the rally; since the price topped a week ago, the budget has shifted back to puts, although one oversized put trade dominated the tail end of this shift. The real change is on the call side — spending on upside has dropped significantly relative to the pace of the previous year. This does not look like panic hedging.

Volatility pricing agrees. The entire implied volatility curve is compressed near the bottom of its range, with the six-month tenor being almost never lower: options traders rarely price such quiet expectations for the next half year.

The Quietest Tape Since 2019

Measured in coins rather than dollars (so price declines don't flatter the data), spot trading volumes have fallen to their lowest since 2019. Excluding Binance (whose zero-fee promotions inflated tracking volumes in 2022-2023), the picture is similar, though still above the deepest trough of the last bear market.

Low volume itself is not a directional signal; it's more a description of who is still there. When cash is being paid to wait, a significant portion seems to choose to do so.

Buy Orders Waiting Below

The order book shows that capital hasn't left, but has stepped back. Since the start of June, the zone 2% to 20% below the spot price has been persistently accumulating buy orders, renewed day after day. Above the price, the sell-side has thinned significantly, with resting sell orders in the same zone near their lowest level in the past month.

Buyers seem willing to enter, just not at current prices; and the supply impeding upward movement is scarce. A thin order book is a double-edged sword, often the way quiet markets accelerate suddenly.

The Final Verdict

The Vector Remains on Hold

The Glassnode Bitcoin Vector reads as Risk Off: moderate rather than extreme, one notch above the capitulation zone, a reading the model calls a tactical pause. A defensive signal, not a capitulatory one, which is the practical embodiment of all the phenomena described above.

The macro environment pays capital to wait. The on-chain and off-chain surfaces have fallen quiet. The model scoring them does not demand anyone jump in early either. A single rally is unlikely to change this; what would change it is the regime itself.

Conclusion

The current regime appears unchanged, with its root cause upstream from the crypto market. When Treasury yields surpass the basis trade and the dollar remains strong, marginal buyers are paid to stay in cash. The downstream surfaces read the same signal accordingly: spot volumes are at multi-year lows, exchange fund flows nearly stalled, and the sell-side has thinned. By depth, it is the shallowest bear market on record; by the clock of previous cycles, it is not yet complete. Improvement will begin with policy and manifest as a reclamation of the $69,000 short-term holder cost basis accompanied by a return of volume, while ETF channels switch from idle to buy. This thesis is invalidated if the $62,000–$68,000 shelf is lost and exchange inflows awaken.