The shallowest bear market for Bitcoin: The entire market falls silent, spot volumes hit a new low since 2019

Original Author: glassnode

Original Translation: AididiaoJP, Foresight News

Treasury yields have exceeded crypto carry trades for only the second time, plunging the downstream market into silence: spot trading volumes are at their lowest since 2019, exchange fund flows are nearly stagnant, and the sell-side order book depth has thinned significantly. This retracement is extremely shallow, and its duration has not yet matched the clocks of previous bear markets.

Summary

• The bond market has stopped pricing in rate cuts and is now pricing in rate hikes.
• Treasury yields exceeding crypto carry trades explains why marginal buyers have chosen to remain parked in cash.
• Spot prices are sitting on the heaviest cost basis shelf on the chart, with the breakeven line at $69,000 above.
• Measured by depth, this is the shallowest bear market on record, and its duration has yet to reach 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's peak and began flowing back within a week.
• Buy-side orders are waiting far below the spot price, while the sell-side has thinned out. The Vector reading is Risk Off.

Macro Insights

Leading Edge Returned

Bitcoin outperformed stock indices last week, absorbed the oil shock (equity markets barely budged), and both finished ahead. This relative strength has faded this week. Bitcoin slipped throughout the week while US and European stock markets treaded water, with the turning point appearing on Monday: from that trading day onward, Bitcoin has not matched the equity markets. Oil also gave back last week's gains, becoming the weakest performer among the four.

A week of relative weakness does not constitute a regime shift. But it does remove one of the few supports from the June recovery, when Bitcoin was bought even on days when stock indices showed no movement.

The Bond Market is Already Pricing in Rate Hikes

The FOMC decides 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 in anticipation of a rate cut; it leans more towards the next move being a rate hike.

A rate cut today would catch most positions off guard, but it would also naturally align with the moderate core inflation data mentioned in last week's report. Market reaction matters more than the decision itself: if a surprise positive catalyst still cannot hold buying, it speaks more to the absence of marginal buyers than the decision itself.

Where Did the Buyers Go

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

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

When Treasury yields exceed the basis, desks that provide leverage, depth, and volume to the market have little reason to stay. Many of the on-chain and off-chain phenomena discussed later can be traced back to this spread.

On-Chain Insights

Sitting on the Heaviest Shelf

Bitcoin is trading within the heaviest single cluster on the cost basis distribution chart—approximately in the $62,000 to $68,000 range, where more coins have changed hands than at any other point on the chart. This range is almost evenly split. Half belongs to short-term holders who bought during this year's decline; half belongs to long-term holders who have sat through the entire journey.

The long-term holder half represents patient supply, often behaving like a floor. The short-term holder half is more sensitive, with most in unrealized loss, making it the supply that moves first during rallies. Above, the short-term holder cost basis sits at $69,000, still a key line determining the next leg; the real supply wall further up is the barrier of long-term holders between $83,000 and $86,000.

Shallow in Magnitude, Not Yet Timely

Two metrics measuring this bear market tell the same story. Relative to the 200-day moving average, no previous bear market has kept 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 the all-time high, the picture is similar—the bottoms of previous bear markets were all much lower than this cycle's trading range so far.

Looking at the 200-day perspective, time tells the other half of the story. Bitcoin has been below this moving average for roughly three-quarters of the typical duration of previous bear markets, and most of those ran longer. Such a mild retracement, without completing the time required by previous cycles, supports patience over a rushed declaration of a bottom—especially for those still operating on the four-year cycle map.

Exchange Outflows Slow Down

Deposits and withdrawals from exchanges have both thinned out. 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 norm. Balances signal similarly from the other side: they have slowly recovered from the April lows and have been largely flat since the beginning of July.

This reads more like apathy than distribution or accumulation—a pattern often seen in the quiet middle of a bear market. With so little on-chain movement, there is hardly any ready supply to absorb demand if it changes.

Off-Chain Insights

ETF Buying Goes Idle

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

The institutional channel is neither dumping nor pumping. After last week's flip, the real metric to watch is sustainability rather than scale, and sustainability has not materialized.

Euphoria at the Highs

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

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

Open interest offers a more cautious reading. The open interest put/call ratio seems to have bottomed at the same time but has barely left that low. Until the position structure follows, this is just repositioning, not a change in stance.

Budget Shifts to Puts

Option 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 end of this shift. The real change is on the call side—upward spending has dropped significantly relative to last year's pace. 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 almost never lower: option traders rarely price in such quiet expectations for the next six months.

Quietest Order Book Since 2019

Measured in coin terms rather than dollars (so price declines do not flatter the data), spot trading volumes have fallen to their lowest since 2019. Excluding Binance (whose zero-fee promotions inflated tracked volumes in 2022-2023), the picture is similar, though still above the deepest troughs of the last bear market.

Low volume itself is not a directional signal, but it describes who is still present. When cash is paid to wait, a significant portion seems to have chosen to wait.

Buy Orders Waiting Below

Order books show that funds haven't left, but have stepped back. Since early June, the zone 2% to 20% below the spot price has been consistently accumulating buy orders, refreshing day after day. Above the price, the sell-side has thinned significantly, with resting sell orders in the same zone near their thinnest level in the past month.

Buyers seem willing to enter, just not at current prices; meanwhile, there is little supply left to hinder upward movement. A thin order book is a double-edged sword, often the mechanism by which quiet markets suddenly accelerate.

Final Verdict

Vector Remains on Hold

The Glassnode Bitcoin Vector reads Risk Off: moderate rather than extreme, positioned one notch above the capitulation zone, a model designation called a tactical pause. A defensive rather than capitulative signal, and a 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, and the model that scores them does not demand anyone to enter early. A single rally is unlikely to change this; what truly changes is the regime itself.

Conclusion

The current regime appears unchanged, with its roots upstream of the crypto market. When Treasury yields exceed the basis trade and the US dollar remains strong, marginal buyers are paid to stay in cash, and the downstream surface reads the same signal: spot volumes at multi-year lows, exchange fund flows nearly stagnant, and the sell-side thinned out. Measured by depth, this 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 with a return of volume, alongside a shift in the ETF channel from idle to buying. A loss of the $62,000 - $68,000 shelf, coupled with an awakening of exchange inflows, would invalidate this thesis.