Original Authors: CryptoVizArt, Frederik Theissen, Glassnode
Original Compilation: Luffy, Foresight News
Bitcoin price has remained below the True Market Mean and Short-Term Holder cost basis for five consecutive months, indicating a state of deep undervaluation.
The proportion of realized losses from Long-Term Holders to total on-chain realized losses has risen to 43%. The peak single-day realized loss reached $280 million, marking the highest level since December 2022. The outflow from spot ETFs has moderated but remains in a state of monthly net outflows. The average daily ETF trading volume fluctuates between $650 million and $950 million, representing an approximately 80% decline from the peak in October 2025. Institutional buying demand has not yet stabilized.
The derivatives positioning structure has shifted to cautiously bullish, with the Put/Call Open Interest ratio dropping to its lowest point in 2026. However, the options volatility skew still maintains a defensive premium, and the spot price remains significantly below the Max Pain level. The market has entered the late-stage consolidation phase. The continuous narrowing of selling pressure from Long-Term Holders is an important precursor for a potential market reversal and recovery.
Macro Perspective
Crude Oil Surges, Risk Assets Under Collective Pressure
WTI crude oil has risen by 7.9% over the past seven trading days, with most gains concentrated recently. The market reacted to news of the expiration of the US-Iran memorandum of understanding, impacting all asset classes. Bitcoin saw a weekly gain of up to 9.4%, now moderating to a 5% weekly increase. The S&P 500 and the EURO STOXX 50 have both turned negative, with European stocks leading the decline in global risk assets. Bitcoin's current trend is highly synchronized with general risk assets.
Liquidity Environment: Contradictions Intensify
Amidst the external shock from crude oil, the market liquidity environment presents a fragmented picture. The US broad money supply M2 has climbed to a record high of $22.8 trillion. Historically, periods of broad money expansion tend to boost market risk appetite. However, the Federal Reserve's balance sheet continues to shrink via quantitative tightening, currently down $2 trillion from its 2023 peak. These two liquidity signals strongly counteract each other: the broad money supply continues to rise, while quantitative tightening persists, with real interest rates remaining around 1%, keeping the opportunity cost of holding non-yielding digital assets high. The window for macro-level tailwinds is not completely closed, but no clear accommodative support has formed.
On-Chain Data
A Deep Undervaluation Period Lasting Five Months
Over the past week, Bitcoin rebounded from $58,300 to $64,400, showing short-term recovery, but the price remains significantly below the True Market Mean of $76,600 and the Short-Term Holder cost basis of $72,200. Only when the price reclaims these two key levels can the market exit the deep undervaluation zone; otherwise, it remains vulnerable to external negative catalysts.
The duration of this discounted period warrants attention. Since early February 2026, the price has consistently traded below the cost basis of active investors and the break-even point for recent entrants, nearing five months. This qualifies as one of the longer-lasting deep discount cycles in Bitcoin's history.
Sustained coin distribution within a prolonged discount period, with new capital consistently accumulating below the cost basis of earlier buyers and overall active market holdings, historically forms the foundation for cyclical bottoms, offering long-term allocation appeal for value investors. Various indicators suggest the consolidation process is entering its latter stages, but a potential retest towards $53,000 cannot be entirely ruled out.
Concentrated Stop-Loss Selling by Long-Term Holders with High-Cost Basis
As the market builds a cyclical bottom, the core question is identifying the primary source of selling pressure. The Relative On-Chain Realized Profit/Loss metric for Long-Term vs. Short-Term Holders, which analyzes the distribution of total realized on-chain profit/loss between the two cohorts, directly reflects the proportional scale of profit/loss realization from each group.
After the price fell below the True Market Mean, the 30-day moving average of realized losses from Long-Term Holders has climbed from 15% in early February 2026 to the current 43%. Stop-loss selling pressure from this group, due to unrealized losses, has become the most dominant bearish force suppressing the price.
These investors mostly entered near cycle highs. After enduring months of deep drawdowns, their holding confidence is gradually eroding, leading to concentrated exits. This coin distribution structure directly explains why every rebound faces concentrated selling from deeply underwater positions, preventing the price from consolidating above the current range.
Stop-Loss Selling Pressure Shows No Signs of Abating
Since Long-Term Holder realized losses have become the main downward pressure, the next key indicator to observe is whether this selling pressure begins to subside.
The Entity-Adjusted LTH Realized Loss metric (30-day SMA) tracks the loss amount realized from the sale of coins held for more than 155 days, excluding internal address transfers, accurately reflecting genuine stop-loss exit behavior. This metric recently reached a new single-day peak, with realized loss scale of approximately $280 million per day—the highest since December 2022. This marks the second significant wave of Long-Term Holder stop-loss selling in this bear market.
The key distinction is that after the first peak, selling pressure saw a temporary decline. This current selling wave has yet to show a contraction in scale. Only when this metric shows a clear decline will the market have the foundational conditions to shift towards a bull market. The trajectory of this metric over the coming weeks to months will be a core signal for determining whether the market has genuinely completed the capitulation process.
Off-Chain Markets
ETF Outflows Slow, But Outflow Trend Persists
Shifting from on-chain to off-chain markets, spot ETF fund flows directly reflect institutional capital behavior. The 30-day moving average of ETF net flows reflects the daily net capital flow into or out of US spot Bitcoin ETFs, smoothing single-day volatility and revealing underlying trends in institutional positioning.
Since mid-May 2026, this indicator entered a period of monthly net outflows. The peak daily outflow reached $193 million in early June, now moderating to a daily net outflow of $88.9 million. The slowdown in outflow scale is a mild positive, but the market still experiences monthly capital depletion, indicating institutional buying demand has not stabilized. Only when fund flows consistently narrow into a balanced range can a basis be formed to anticipate a potential expansionary price move in the near term.
Institutional Trading Volume Remains Depressed
In addition to net inflow data, US spot ETF trading volume can help gauge the recovery level of institutional confidence. The 30-day moving average of average daily ETF trading volume currently fluctuates between $650 million and $950 million, a level comparable to Q4 2024 but roughly 80% lower than the peak daily average of $4.4 billion reached in October 2025.
The current trading scale only reflects a baseline level of institutional participation and remains extremely depressed compared to bull market peaks, indicating that ETF investors' medium-to-long-term bullish confidence has not substantially returned. Only when daily trading volume consistently expands alongside a continuous narrowing of net outflow scale—both signals appearing simultaneously—can a recovery in institutional demand be confirmed. Until both metrics improve in tandem, off-chain data corroborates on-chain indicators, suggesting the market remains broadly dominated by bearish conditions.
Derivatives Markets
Short Squeeze, Positioning Shifts to Cautiously Bullish
Despite the weakening risk sentiment, the derivatives positioning structure has shown a reverse change. The Put/Call Open Interest ratio for options has fallen to 0.56, the lowest level in 2026. The market currently holds two call options for every put option. Options trading flow corroborates this trend: two weeks ago, when Bitcoin retested lows, the market aggressively bought puts for hedging, causing the Put/Call Volume ratio to surge significantly. As call order flow steadily returned, this ratio rapidly declined, even though the spot price only recovered part of its losses.
Perpetual swap funding rates also confirm the positioning shift. The average perpetual funding rate has been consistently below the 0.01% long-short equilibrium line, far from levels indicating crowded long positions. The derivatives market has completed its short-squeeze risk purge and has turned cautiously bullish overall amid external headwinds, a complete reversal from the crowded short positioning structure preceding the previous major decline.
Options Skew Still Prices in Downside Risk
While overall positioning leans bullish, the options volatility skew offers a contrary signal. The 25-delta volatility skew metric (the premium for downside protection relative to upside exposure) remains in a state of premium across all tenors. Each decline this year has pushed this premium higher. By late June, the metric spiked to 24%, representing the strongest defensive sentiment in near-term contracts since the February sell-off. Even with the market's overall positioning leaning long, traders are still willing to pay a premium for downside hedging tools.
Spot Price Deviates from Max Pain Level
Beyond positioning and volatility skew, the relative position of the spot price to the options market structure provides further clues. The current Bitcoin spot price is approximately 6% below the aggregate market Max Pain level of $66,000. The Max Pain price is the strike price at which the maximum number of open option contracts would expire worthless, and the price often gravitates towards this level approaching expiry.
This week's decline further widened the gap between spot and Max Pain, but the deviation is far less extreme than during the February sell-off, placing it only in the middle of the 2026 price fluctuation range. Throughout the year, the Max Pain level has consistently acted as a gravitational center, with the spot price oscillating around it, rarely experiencing prolonged, significant deviation. If the price can sustainably hold above $66,000, short-term signals would turn optimistic. If the gap widens further, it would reinforce the overall defensive trading sentiment evident in the options market.
Crash Protection Costs Continue to Decline
While signals from volatility skew and positioning diverge, the absolute cost trend for hedging downside risk is clear. With the market's modest rebound, the put-side of the one-month volatility curve has generally repriced lower. The implied volatility for put options 5% out-of-the-money (OTM) has declined significantly. The lowest pricing points on the volatility curve are concentrated in far OTM call options.
Overall defensive sentiment persists, but the absolute cost traders pay to hedge against declines has noticeably decreased. Extending the time frame makes this trend clearer: the volatility premium driven by extreme put hedging demand during the February and June sell-offs has gradually dissipated entering July. The DVOL volatility index has fallen to a 12-month low, as the market enters a low-volatility regime. While cautious sentiment still dominates the tape, hedging demand is gradually subsiding.
Summary
Comprehensive analysis of data from on-chain, off-chain, and derivatives dimensions clearly reveals characteristics typical of the late stages of a bear market.
On-chain data shows a prolonged, five-month deep undervaluation cycle continues. The single-day realized loss scale from Long-Term Holders has risen to $280 million, indicating large-scale coin distribution is underway. However, a sustained decline in this capitulation metric remains a necessary precursor for an effective market reversal.
Regarding off-chain data, ETF fund outflow scale has narrowed from its June peak but remains in a state of persistent monthly net outflows. The average daily trading volume is down approximately 80% from the October 2025 peak, reflecting low institutional confidence in taking long positions.
From the derivatives perspective, market positioning has shifted to cautiously bullish, with the Put/Call ratio hitting a new yearly low. However, the volatility skew and options surface continue to price in downside risk.
Synthesizing all indicators, the foundational conditions required for a market bottom are largely in place, but the core confirmatory signals have not yet emerged. Subsequent price action needs to meet three conditions: sustained cooling of Long-Term Holder stop-loss selling pressure, stabilization of institutional fund flows, and the price effectively reclaiming and holding above the True Market Mean. Only on this basis will the probability of a transition to a new bull market cycle significantly increase.
