Rally Cools as Traders Hedge the Heat

After months of steady rise to record high, bitcoin’s BTC$111,321.32 pulse has slowed, with BTC changing hands above $111,000 Friday afternoon, Hong Kong time, up 2% over the last week according to CoinDesk market data.

The pullback from the recent peak of over $126,000 is marked by momentum faltering below key cost-basis levels, with capital leaving the spot market and ETFs, alongside defensive options positioning.

In a recent report, Glassnode frames the repeated breakdowns below key quantiles as evidence of market exhaustion. At the same time, CryptoQuant, in a note shared with CoinDesk, finds similar stress in shrinking realized profits and drained exchange inflows.

Capital, they both argue, is staying in crypto but rotating from spot to derivatives, with volatility itself now the main traded asset. Until that balance resets, rallies are likely to be faded rather than followed.

Glassnode points to the short-term holders’ cost basis around $113,000 as the dividing line between renewed strength and deeper consolidation. Falling below that threshold, the firm says, signals that recent buyers are now sitting on losses, eroding confidence and forcing weaker hands to capitulate.

Long-term holders, meanwhile, have been selling into strength at a pace exceeding 22,000 BTC per day since July, a trend that continues to sap momentum and weigh on any sustained recovery. If bitcoin fails to reclaim the $113,000 line, Glassnode warns that losses could deepen toward the $108,000–$97,000 range, where 15%–25% of the supply has historically become unprofitable.

CryptoQuant’s data reinforces that view from a flow perspective. ETF inflows have cooled after months of accumulation, while exchange reserves are rising again, a sign that traders are preparing to sell into volatility rather than accumulate.

The firm characterizes this as a rotation of capital within crypto rather than a full exit, as liquidity migrates toward futures and options markets where volatility premiums have surged. This mirrors structural shifts seen in 2021 and mid-2022, when speculative leverage replaced spot conviction.

Options data echo the broader sense of caution. Glassnode reports record-high open interest as traders increasingly rely on derivatives to hedge rather than bet on upside, with put demand rising across maturities.

Glassnode notes that market makers’ hedging has tended to smooth short-term price action, selling into rallies and buying dips to stay delta (market) neutral. Elevated volatility and heavy put demand are keeping the market pinned, with rallies capped by hedging flows rather than broad conviction.

These dynamics have left the market in a limbo, where price action is more shaped by risk management than by directional conviction.

CryptoQuant interprets these flows as a sign of consolidation rather than collapse, writing that liquidity is staying within crypto’s ecosystem, rotating through different instruments as investors wait for clearer macro or policy signals before committing new capital.

Both firms suggest that a meaningful recovery will require renewed spot demand and calmer derivatives activity, conditions that may hinge on the timing of Fed rate cuts or a revival in ETF inflows.

For now, bitcoin isn’t breaking down so much as catching its breath, trading less like a revolution and more like a rotation. Volatility may still be the market’s favorite asset class, but sooner or later, even traders get tired of trading fear.