Bitcoin has found stability above crucial levels, but the market dynamics are reminiscent of early 2022, with more than 25% of the supply currently underwater. Weakening demand is evident across ETFs and futures, presenting potential risks. Bitcoin’s market dynamics are presently reminiscent of early 2022, with substantial segments of supply remaining underwater, as per reports. Even with Bitcoin stabilizing above the True Market Mean, a key valuation benchmark, over 25% of its supply remains underwater, indicating a delicate market framework vulnerable to macroeconomic disturbances. The True Market Mean, which signifies the cost basis of all non-dormant coins, has emerged as a crucial threshold for Bitcoin, delineating the boundary between a slight bearish phase and a more pronounced bear market.
Recently, Bitcoin’s price has found stability above this threshold, while the overall market structure reflects the dynamics observed in Q1 2022. The Supply Quantiles Cost Basis Model indicates that the current price level puts a substantial amount of supply in jeopardy, with over 25% of it underwater. This situation creates a delicate equilibrium between the potential for seller fatigue and the risk of further declines. Off-chain metrics highlight the market’s susceptibility. Bitcoin ETFs are witnessing negative net flows, marking a significant turnaround from previous positive trends, which suggests a decline in institutional demand. The current softening demand is evident in the spot market, as source indicates a consistent negative trend, highlighting the rise in sell pressure.
The derivatives market is witnessing a decline in futures open interest, indicating a cautious approach from traders. Funding rates have found a balance in neutral territory, signaling a lack of aggressive positioning in the market. Options markets are currently exhibiting compressed implied volatility alongside a notable shift in trader behavior. There is a clear preference for cautious call selling rather than put buying, indicating a more defensive sentiment prevailing in the market. To stabilize the market structure and mitigate downside risks, it is essential to maintain a position within the 0.75-0.85 quantile band, with prices ranging from $96.1K to $106K.
This range is identified as a possible bottom-formation zone, provided it remains undisturbed by adverse macroeconomic factors. Meanwhile, the current capital momentum, while not as strong as earlier in the year, still holds a slightly positive stance, providing some support against a more significant market downturn. As the year comes to an end, Bitcoin’s market finds itself in a fragile state, with its future direction heavily reliant on regaining crucial support levels and the resurgence of more robust demand indicators.