After a breakdown to the downside, where is the support level in the Bitcoin market?

Author: Glassnode

Compiled by: AididiaoJP, Foresight News

Bitcoin spot trading volume remains subdued. Despite the price dropping from $98,000 to $72,000, the 30-day average trading volume remains weak. This reflects insufficient market demand and a lack of effective absorption of selling pressure.

Key Insights

• Bitcoin has confirmed a breakdown, with the price falling below the true market mean, shifting market sentiment to cautious defense.
• On-chain data shows initial signs of accumulation in the $70,000 to $80,000 range, with a dense holding cost zone between $66,900 and $70,600, which may serve as a short-term buffer against selling pressure.
• The phenomenon of investor losses leading to forced selling has intensified. As prices continue to decline, more holders are forced to cut losses and exit.
• Spot trading volume remains weak, further indicating insufficient market absorption and a lack of effective digestion of sell orders.
• The futures market has entered a forced deleveraging phase, with large-scale long liquidations exacerbating market volatility and downward pressure.
• Institutional capital inflows have significantly weakened. ETF and related fund net inflows have shrunk, unable to sustain the buying support seen during earlier rallies.
• The options market continues to reflect high downside risk expectations, with implied volatility remaining elevated. Rising demand for put options indicates strong hedging sentiment.
• With market leverage being cleared and spot demand still weak, prices remain fragile. Any rebound may only be technical correction rather than a trend reversal.

On-Chain Data Observations

Following last week’s analysis indicating the market faced downside risk after failing to recover the short-term holding cost of $94,500, the price has now clearly broken below the true market mean.

Breaking Key Support

The true market mean (average cost of active circulating holdings excluding long-dormant tokens) has repeatedly served as a critical support line during this correction.

The loss of this support confirms the deterioration of market structure since late November. The current pattern resembles the phase in early 2022 when the market shifted from oscillation to deep correction. Weak demand combined with persistent selling pressure indicates a fragile equilibrium.

In the medium term, price volatility is gradually narrowing. Resistance is near the true market mean at around $80,200, while support lies near the realized price at approximately $55,800, a level historically attracting long-term capital.

Potential Demand Zone Analysis

As the market structure resets, focus shifts to possible stabilization points on the downside. The following on-chain indicators help identify potential bottoming zones:

UTXO realized price distribution shows significant accumulation by new investors between $70,000 and $80,000, indicating willingness to buy on dips in this range. Below that, a dense accumulation zone between $66,900 and $70,600 exists, which historically has served as a short-term support band.

Market Pressure Indicators

Realized loss metrics directly reflect investor stress levels. Currently, the 7-day average realized loss exceeds $1.26 billion daily, indicating increased panic selling after breaching key support levels.

Historical experience shows peaks in realized losses often occur during capitulation phases. For example, during the recent rebound from $72,000, daily losses briefly exceeded $2.4 billion. Such extreme figures often mark short-term turning points.

Comparison with Historical Cycles

The relative unrealized loss indicator (unrealized loss as a percentage of total market cap) aids cross-cycle comparison of market stress. Extreme bear market values often exceed 30%, reaching 65%-75% at cycle bottoms in 2018 and 2022.

Currently, this indicator has risen above the long-term average (~12%), indicating that investors holding above current prices are under pressure. However, reaching historical extremes typically requires systemic events akin to LUNA or FTX collapses.

Market Dynamics

Spot and futures trading volumes remain low, with options markets continuing to focus on downside protection.

Institutional Funds Turning Net Outflows

As prices decline, demand from major institutional investors has noticeably weakened. Spot ETF inflows have slowed, and corporate and government-related funds are decreasing, showing reduced willingness for new capital entry.

This sharply contrasts with the previous rally phase, when sustained inflows supported price increases. The shift in capital flow further confirms a lack of new funds entering at current levels.

Spot Trading Volume Still Dull

Despite the drop from $98,000 to $72,000, the 30-day average trading volume has not significantly expanded. This indicates a lack of sufficient buy-side absorption during the decline.

Historically, genuine trend reversals are accompanied by a marked increase in spot volume. The current modest volume rebound suggests market activity remains focused on de-risking and liquidation rather than new positions.

Limited liquidity makes the market more sensitive to sell pressure; even moderate sell orders can trigger larger declines.

Futures Market Forced Liquidations

Large-scale long liquidations have occurred, reaching the highest levels since this downturn began. This indicates that as prices fell, leveraged long positions were forcibly closed, intensifying downward momentum.

Notably, during November-December, liquidation activity was relatively moderate, suggesting leverage was gradually rebuilding. The recent surge marks a phase of forced deleveraging, with liquidations becoming a primary driver of price declines.

Whether prices can stabilize depends on the extent of deleveraging. Genuine recovery requires spot buying support; mere liquidation cannot sustain a rebound.

Short-Term Volatility Remains Elevated

When the price tested the previous high of $73,000 (now acting as support), short-term implied volatility rose to around 70%. Over the past week, volatility levels increased by about 20 points compared to two weeks ago, with the entire volatility curve shifting upward.

Short-term implied volatility remains above recent realized volatility, indicating investors are willing to pay a premium for short-term protection. This re-pricing is especially evident in recent contracts, highlighting concentrated risk in this area.

It mainly reflects hedging against sudden drops rather than a directional outlook. Traders are reluctant to sell large amounts of short-term options, keeping downside protection costs high.

Demand for Put Options Continues to Rise

Volatility re-pricing shows a clear directional bias. The skew favoring puts over calls has widened again, indicating market concern over downside risk rather than rebound opportunities.

Even with prices above $73,000, options flows remain concentrated in protective positions, skewing implied volatility distribution negatively and reinforcing a defensive market tone.

Volatility Risk Premium Turns Negative

One-week volatility risk premium has turned negative for the first time since early December, currently around -5, whereas a month ago it was near +23.

Negative risk premium implies implied volatility is below actual realized volatility. For option sellers, this means time decay benefits turn into losses, prompting more frequent hedging and increasing short-term market pressure.

In this environment, options trading no longer stabilizes the market; it may even amplify price swings.

$75,000 Put Option Premium Changes

Put options with a strike of $75,000 are a focal point, repeatedly tested. Net buying premiums for these puts have increased significantly, progressing in three stages, each coinciding with price declines and lacking effective rebounds.

For longer-term options (over 3 months), the situation differs: selling premiums have begun to surpass buying premiums, indicating traders are willing to sell high-volatility distant contracts while still paying for short-term protection.

Summary

Bitcoin, after failing to reclaim the key $94,500 level, broke below the true market mean of $80,200 and entered a defensive stance. As prices fell into the $70,000 range, unrealized gains contracted, and realized losses increased. Although initial accumulation signs appeared in the $70,000-$80,000 zone, and a dense holding band formed between $66,900 and $70,600, ongoing loss-driven selling indicates market sentiment remains cautious.

In derivatives markets, disorderly selling and large-scale long liquidations confirm leverage reset. While this helps clear speculative bubbles, it alone is insufficient to establish a solid bottom. The options market reflects rising uncertainty, with increased put demand and high volatility signaling investor preparation for continued turbulence.

Future direction still hinges on spot demand. Without increased spot participation and sustained capital inflows, the market will likely face further downside, and rebounds may lack durability. Until fundamentals improve, risks remain skewed downward. Genuine recovery requires time, thorough capitulation, and a substantial restoration of buyer confidence.