The incremental buying power to build a solid bottom has yet to emerge.

Written by: Chris Beamish, CryptoVizArt, Antoine Colpaert, Glassnode

Translated by: Chopper, Foresight News

TL;DR:

• The AVIV index Z value has fallen to -1.09, before retreating to -1.06, indicating that the current currency price relative to the cycle average has entered a deeply oversold range. The price has failed to rebound effectively from low levels, and market panic continues to spread.
• Over 95% of short-term holders are in a loss position, with the proportion of profitable chips among short-term holders only slightly recovering to 3.3%, well below the four-year average of 55%. The market fundamentals are weak and easily affected by external shocks.
• The realized profit/loss ratio of short-term holders (STH-SOPR) Z value has dipped to a low of -1.86, just a step away from the critical threshold of -2 that indicates extreme panic selling. This shows that the market's stop-loss behavior is intensifying, but has not yet reached the selling pressure intensity capable of generating a sustained rebound in history.
• US institutional demand has significantly cooled. During Bitcoin's decline to $60,000, the Coinbase spread has remained in the discount zone, reflecting a lack of signs that institutions are actively bottom-fishing on the platform's spot market.
• The pace of Bitcoin accumulation by corporate treasuries has sharply slowed. Since June, the net purchase volume of institutions has fallen from a previous daily average of over $500 million to nearly zero, with another major support force in the market exiting.
• After Bitcoin broke through critical support levels, the market experienced a large-scale deleveraging event, with many leveraged long positions being liquidated, clearing excessive speculation in the market.
• After Bitcoin broke through the range, implied volatility rose sharply. The volatility risk premium continued to rise, and the uncertainty priced in by the options market far exceeds the risk level corresponding to recent actual market volatility.
• The volatility skew index for options of all durations has surged, with significant demand for downside protection tools, and traders are paying higher premiums for put options.
• Market trading is mainly defensive, with the largest negative gamma exposure concentrated around $65,000, which is not far from the current spot price.

Macro Market Insights

The US Dollar Index closed at 100.01, rising 0.8% for the week, with a cumulative increase of 2.1% over the past thirty days. The dollar continues to strengthen, with global liquidity tightening overall over the past month. The yield on the 10-year US Treasury remains at 4.53%, while the 2-year Treasury yield is at 4.14%, with the spread between the ten-year and two-year Treasuries at 0.39%. The shape of the yield curve indicates that the US economy is at the tail end of the cycle, and the Federal Reserve has not yet made significant adjustments to monetary policy.

Due to unfavorable macro factors, Bitcoin fell 7.5% this week, currently priced at $61,700. After a period of divergent movement, the negative correlation established between May 2022 and 2023 of "USD strengthening, crypto assets under pressure" has resurfaced. With the dollar index stabilizing above 100, coupled with the 10-year Treasury yield breaking above 4.5%, historical patterns suggest that such a combination of rates and the dollar typically compresses the speculative premium of risk assets.

For Bitcoin to see a sustained rebound, one of two conditions must be met: the dollar index must effectively fall below 99, or the 10-year Treasury yield must retreat to around 4.2%. Currently, neither of these conditions has been met.

On-Chain Data Analysis

Deeply Oversold Valuation

The previous analysis pointed out that the rally in May was a bear market bounce. The cost basis for short-term holders has fallen below the real market average for the first time since January 2022, a signal that the market has entered the late stage of the bear market. This issue will continue to interpret subsequent pullback trends, including the price dipping to $59,000 and the subsequent weak sideways consolidation.

We use the AVIV (Active Investor Value Deviation) indicator to judge the extent of the current price's overshoot relative to the cycle average. This indicator compares the spot price with the real market average (the comprehensive cost basis of active investors excluding miner holdings). Its four-year Z value can measure the degree of price deviation relative to this benchmark, with a Z value of 0 being the dividing line between overvaluation and undervaluation.

Currently, the AVIV indicator value is 0.80, corresponding to a Z value of -1.06, and in the past two weeks, it has touched a low of -1.09. The current valuation is in a deeply discounted area within the historical range. Over the past week, prices at the cycle low have failed to rebound effectively, proving that market panic has not dissipated for a long time.

New Investors Fully Stuck

Combining the overall market's discount status, we analyze the situation of recent incoming funds separately. The short-term holder market cap / realized market cap ratio (STH-MVRV) compares the spot price with the cost basis of short-term holders, where values below 1 indicate that this group is generally in an unrealized loss position.

The indicator recently dropped to as low as 0.81, rebounding slightly to 0.83, suggesting the average unrealized loss proportion for new investors has reached 17% to 19%. This also confirms the assessment in May that the market formed a dense holding area in the $78,000 to $82,000 range, which is now generally in a loss position, consistent with the previous judgment of "new investors under pressure."

A temporary stabilization of prices at low levels is a common pattern in a downtrend. When investors with the most significant losses complete their first round of passive selling, the remaining market participants tend to remain observant. Whether this sideways phase can effectively build a solid bottom or is merely a consolidative pause in the downtrend depends on whether new buying power can emerge at current price levels.

95% of Short-Term Holders Experience Losses

To further assess the pressure on short-term holders, we refer to the percentage of profitable chips among short-term holders. This indicator counts the proportion of short-term holdings in a profitable state within the total short-term holdings, aiming to assess the extent of losses rather than just measuring unrealized loss magnitude.

The indicator recently dropped to just 0.6%, rebounding slightly to 3.3%, far below the four-year average of 55%. Based on actual data, over 95% of short-term holders are currently in a loss position. This level of loss historically falls into a significant surrender zone, where new investors generally bear the pressure, leading to a fragile market structure easily affected by any negative external factors.

A nearly comprehensive loss in the market, and the absence of apparent repair in related indicators, is sufficient to indicate that the current sideways trend is merely a phase of dwindling selling pressure, rather than the market completing the bottoming process.

Market Approaches Panic Selling Threshold

Apart from unrealized loss data, the actual selling behavior of investors further confirms the current market's severe situation. We use the four-year cycle average as a benchmark, and by Z value, we calculate the short-term holders’ seven-day moving average of the realized profit/loss ratio (STH-SOPR) to measure the intensity of loss realization among new investors in this cycle.

Currently, the Z value of this indicator is -1.57, with a two-week low of -1.86, just 0.14 standard deviations away from the historical panic selling threshold of -2.

At this stage, the cutting losses behavior of short-term holders is becoming increasingly frequent and accelerating, corresponding to the previously reported total realized loss of $1.35 billion in a single day, and the deep unrealized loss status reflected by the short-term holders’ MVRV. However, the ultimate panic selling that historically triggers medium-to-long-term rebounds has yet to occur.

The current market is in an awkward intermediate state: the scale of loss realization is sufficient to confirm the depth of the bear market, but has not yet reached the standard of completely clearing selling pressure or building a solid bottom.

Off-Chain Market Insights

Coinbase Spread Completely Disappears

The Coinbase spread indicator measures the difference between Coinbase’s spot price and Binance’s perpetual contract price, serving as an important window to observe US institutional demand. When Coinbase prices show a premium, it indicates that institutions are actively buying spot Bitcoin, pushing up the platform price above offshore contract market quotes.

In recent weeks, the market dynamics have completely reversed, and this spread has remained in a discount state. As Bitcoin declined to $60,000, buying on the US spot market cooled significantly. The buying behavior typically seen during pullbacks did not happen this time, with institutions generally choosing to remain on the sidelines, causing another important support force to disappear.

Corporate Treasury Demand Cools

From April to May, corporate treasuries continuously increased their Bitcoin holdings, becoming a core support force in the market, with multiple instances of daily net purchases exceeding $500 million. However, since June, this demand has clearly weakened.

During the process of Bitcoin falling from above $75,000 to $60,000, the scale of net purchases by corporate treasuries has significantly shrunk, with daily increases dropping to negligible amounts. While corporates remain net buyers overall, the intensity of buying has diminished, indicating that this group’s risk appetite is beginning to trend cautiously. In an environment of overall market pessimism, marginal buying power is further reduced.

Comprehensive Deleveraging Below $70,000

Liquidation heatmap data shows that a significant number of leveraged long positions are concentrated in the $64,000 to $70,000 range. Last week, Bitcoin's rapid downturn led to concentrated liquidations of long positions in this range, with cascading liquidations pushing the price briefly below $60,000 before finding support.

Currently, the liquidity of long positions near this range has essentially been exhausted, completing a large-scale deleveraging cycle in the market. Compared to a week ago, the current structure of leveraged positions is healthier, with the excessive speculative leverage accumulated within the recent oscillation range having been largely cleared by the market.

Implied Volatility Rises Sharply

After Bitcoin broke out of its multi-month oscillation range, the implied volatility surface across all durations underwent repricing, with rising demand for options tools as the spot price approached February's low.

Short-term volatility reacted most violently. The implied volatility of weekly at-the-money options surged to over 60%, before retracting to around 50%; while one-month implied volatility rose from about 34% to 45%. Long-term products also climbed, with June’s implied volatility increasing from around 40% to 44%.

This rise in volatility is a comprehensive reassessment of the market's future uncertainty, rather than a short-term emotional disturbance. Although volatility has fallen back from its peak, demand for options hedging tools remains robust. Even with a temporary stabilization in spot prices, traders are still willing to pay higher costs for risk protection. This round of decline has fundamentally shifted the market's expectations for volatility, with the hedging costs for instruments across all durations also rising, and market risk-averse sentiment remains high.

Volatility Risk Premium Remains High

After a sharp rise in implied volatility, comparing implied volatility with realized volatility reveals that the future price fluctuations priced in by the options market still exceed the recent actual volatility level of the spot market.

One-month implied volatility increased from around 35% to 44%, and during this decline, realized volatility also rose from 27% to 39%. Both types of indicators have increased, but the rise in implied volatility is more aggressive, maintaining a positive volatility risk premium.

After the price broke through key support levels, the market urgently reassessed risks, and the volatility spread briefly widened to 10 volatility points. Although the spread has narrowed lately, the options prices still exceed the reasonable levels corresponding to actual market volatility. This also reflects the market's general expectation of significant future fluctuations.

The uncertainty priced by the options market far exceeds the risks reflected in the recent actual market movements, causing the volatility risk premium to remain high.

25Delta Volatility Skew Rises Sharply

In the context of overall upward volatility premiums, the volatility skew indicator can clearly show the layout direction of funds. During Bitcoin's decline below support and probing February's low, traders concentrated on buying downside protection tools.

The volatility skew is calculated by subtracting the call options' volatility from the put options' volatility, with a positive value indicating that put options are priced higher than calls under equivalent conditions. This round of decline has driven all-duration skew indicators to rise collectively: one-month skew rose from around 11% to 24%, while three-month and six-month skews climbed to 18% and 14%, respectively.

Short-term indicators reacted most strongly, with the one-week skew approaching 30%. During the downtrend, the market's need for short-term downside hedging surged. If implied volatility rising indicates the market's overall risk vigilance, then the volatility skew distinctly points in one direction—capital concentrating on downside hedging.

As the market environment continues to weaken, the demand for downside protection has significantly increased, with traders paying climbing premiums for put options.

Large Accumulation of Gamma Exposure Near $65,000

Apart from options prices, gamma exposure helps determine the strike price where options market makers’ hedging actions most significantly influence price movements.

Current market trading is overall defensive. Over the past seven days, put options accounted for 32.4% of total options trading volume; in the last 24 hours, this proportion has further risen to 35.9%. Even after a significant decline, market trading remains primarily focused on purchasing downside protection.

This trading behavior is directly reflected in the gamma exposure structure: currently, the largest negative gamma exposure is concentrated around $65,000, with a large amount of negative gamma exposure also distributed in the $59,000 to $70,000 range. Bitcoin's current price is around $62,000, with the spot price just below the maximum short-term negative gamma zone. Meanwhile, positive gamma exposure is mainly concentrated in the higher $76,000 to $82,000 range.

Defensive trading has dominated the market makers' holding structure, with the maximum negative gamma area located at $65,000, very close to the current spot price.

Conclusion

The current market displays typical characteristics of a late-stage bear market correction: recent investors are deeply trapped, and the realized loss scale in the market remains high, with multiple core buying forces weakening.

The process of Bitcoin's decline to $60,000 triggered a large-scale deleveraging event, concentrating the speculative positions within the market. Leveraged levels returned to reasonable, but the spot market has not seen effective new buying power.

The options market overall maintains a defensive posture, with high implied volatility, strong demand for downside hedging, and key exposures of market makers closely aligned with current spot price levels. Coupled with reduced institutional participation and weakened corporate treasury buying intensity, this clearly indicates a sustained low risk appetite in the market.

Considering all the data, the market is gradually entering a phase of deep panic selling. Although market leverage has essentially cleared out, and valuation indicators have fallen into a historically deep discount area, the incremental buying power corresponding to the establishment of a solid bottom in history has yet to appear.