Bitcoin Holds Steady in a Fragile Market Range, Weak but Resilient

• Bitcoin faces pressure from unrealized losses, sell-offs, and profit-taking by long-term holders.
• Market stability depends on liquidity improvements and seller exhaustion in the short term.
• Options market shows defensive positioning, with traders preparing for near-term volatility events.

Bitcoin (BTC) is currently trading within a vulnerable range, facing pressure from significant unrealized losses, the realization of realized losses, and substantial profit-taking by long-term holders. According to the report from blockchain data provider Glassnode, the market remains stable for now, but there is a lack of strong conviction.

The analysts noted that the predominant cryptocurrency is trading in a structurally vulnerable area, and the above three factors influence its pricing behavior currently.

The demand is enough so that the price is kept above the True Market Mean, which is the cost basis of all non-dormant coins even in the presence of the current sell pressure. This shows that the distribution to the buyers is still absorbing.

Overall, the market structure presents a weak yet steady range and patient demand, albeit with the ongoing sell pressure, according to the analysts.

Moreover, short-term prognosis will rely on whether liquidity will improve and sellers will relax their sales. The potential of the market to reclaim key cost-basis levels and proceed beyond this lengthy, psychologically difficult period will be critical in the long run.

Rising Realized Losses Pose Challenges for Market Recovery

In addition, the analysts noted that according to on-chain signals, as the market keeps staying within this weak and yet confined range, time becomes a negative factor. According to them, investors are finding it more and more difficult to bear unrealized losses, and prospects of realizing them increase.

The more the realized losses, the harder it is to recover. This is reinforced by an increase in the profits of the long-term investors.

The price, however, did momentarily regain an upswing above the True Market Means. In the short run, in case of seller exhaustion, the underlying buying factor might result in a re-test of the $95,000 mark and even the STH-Cost Basis of $102,700.

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The True Market Mean up until this time is the most probable bottom-formation zone, unless there is a new development of a macro shock, the analyst says.

On-chain indicators are warning signs, and off-chain metrics are indicative of the same, as Glassnode states. More precisely, there is negative flow in ETFs, low liquidity in the spot, and minimal speculative interest in the futures markets.

Source: Glassnode

The spot market is experiencing a decline in demand, and it cannot offer any short-term buy-side. This increases the price vulnerability to macroeconomic events and shocks in volatility.

Bitcoin Spot Volume Signals Defensive Market Positioning

The spot relative volume of Bitcoin is close to the lower limit of its 30-day range, which is a sign of defensive positioning throughout the board. Having fewer liquidity-based flows, volatility becomes difficult to absorb, and prices can show lasting movement.

Source: Glassnode

Additionally, the report says that, across the perpetual markets, funding was close to zero or a bit negative, which shows the continued withdrawing of speculative long positions.

Source: Glassnode

Options market activity, in its turn, was relatively subdued, unlike the spike in short-term implied volatility, with traders having been seeking a bigger move. According to the analysts, options markets are defensively positioned and preparing for a volatility event in the near term.

The analysts noted further that the traders are purchasing volatility and not selling it. The buying of the two wings shows hedging and a quest to find the convexity as opposed to sentimental buying.

Notably, the most significant trigger was that of the US Federal Reserve, which indicated that a transition was about to occur to a low-liquidity, mean-reverting environment.

With the announcement of the rate cut, the gamma sellers would resume buying back, which will cause more rapid implied volatility decay towards the end of the year. 

The trend of least resistance leans towards smaller implied volatility and a smoother surface until the end of December unless there should be a hawkish surprise or a substantial change in direction, the report reveals.

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