Market Outlook: Bitcoin's Defensive Consolidation Continues Until Key Levels Are Reclaimed

Bitcoin (BTC) is presently in a fragile state, trading within a restricted range after dropping below crucial cost-basis levels. According to the latest report from analytics platform Glassnode, both on-chain and off-chain data suggest that until Bitcoin regains these significant price levels and new inflows begin, the market is likely to remain in a phase of "low-conviction consolidation."

Key Takeaways

Bitcoin is currently trading below the short-term holder cost basis of about $104,600.
Market conditions reflect low liquidity and demand, similar to the downturn experienced in Q1 2022.
Indicators show signs of stress among short-term and long-term holders, while liquidity is diminishing.
Off-chain signals exhibit a cautious sentiment among traders, with futures open interest decreasing and funding rates remaining neutral.
The market is bracing for possible volatility leading up to significant futures expirations in December.

Bitcoin

Bitcoin's Current Market State

Bitcoin has been trading below the short-term cost basis of approximately $104,600 since early October, placing it in a range that indicates a lack of liquidity and demand. Over the past several weeks, Bitcoin's price has fluctuated between $81,000 and $89,000. This pattern is reminiscent of the post-all-time-high (ATH) period in Q1 2022, where the market experienced declining demand.

Loss realization has also increased in recent weeks, a typical sign seen in a bear market struggling with liquidity. As optimism wanes, some investors are exiting their positions at a loss. According to Glassnode:

“Bitcoin is not in a full capitulation phase, but it remains entrenched in a low-liquidity, low-conviction environment. Unless the price can regain key cost-basis levels and attract new demand, the market will likely continue to navigate through a defensive consolidation phase.”

Short-term downside pressures have also eased, reducing the risk of a significant price drop compared to earlier downturns. The sentiment has shifted from urgent protective measures to a more cautious approach.

However, recent positive price movements have alleviated some short-term panic, but they have not resolved the underlying structural weaknesses that still exist in the market. Despite the current market stability, there are growing concerns about a potential extended bearish trajectory into 2026.

Overall, while short-term fears have diminished, the broader market remains vulnerable to sudden fluctuations.

Rising Market Stress Indicators

Three primary indicators reveal increasing stress within the market. The Short-Term Holder (STH) loss ratios have plummeted to 0.07x, long-term holders (LTH) have seen their profit margins shrink, and realized losses have reached levels comparable to early-cycle lows.

Liquidity remains a critical focus during market downturns. Extended periods of low liquidity can heighten the risk of further price contractions. Analysts have noted that liquidity continues to dwindle, which raises the possibility of retesting the True Market Mean of approximately $81,000.

Glassnode Indicator

Furthermore, the STH Realized Profit/Loss Ratio, reflecting the current demand, fell below 4.3x in early October and has plummeted to 0.07x.

“Such overwhelming loss dominance confirms that liquidity has evaporated,” the report notes, indicating that if this ratio remains low, market conditions could start to resemble the weakness observed in Q1 2022, increasing the risk of a decline below the True Market Mean.

The 7-day Simple Moving Average (SMA) of the Long-Term Holder (LTH) Realized Profit/Loss Ratio has also dropped to 408x. Trading above 100x indicates healthier liquidity compared to the previous lows, suggesting that LTHs are still managing to secure profits.

“However, if liquidity continues to diminish and this ratio declines towards 10x or lower, the likelihood of entering a deeper bear market becomes increasingly significant,” the report adds. “This threshold has historically signified considerable stress among long-term holders.”

Caution Reflected in Off-Chain Signals

The report identifies three essential metrics that reinforce a cautious market sentiment. Futures open interest is decreasing, funding rates are neutral, and leverage across key assets is fading.

Initially, the decline in futures open interest alongside falling prices indicates a reduction in leverage accumulated from earlier rallies. This leaner leverage base lowers the chances of sudden volatility caused by liquidations while also reflecting a more cautious stance in the futures markets.

Perpetual funding rates have mostly remained neutral, occasionally dipping into negative territory, marking a significant shift from previous trends characterized by positive funding rates typical in speculative phases. This trend signals a more balanced and careful derivatives landscape.

Glassnode Futures

Moreover, there is neither aggressive short positions nor strong long interest dominating market dynamics, leaving the market in a precarious state of fragile equilibrium as traders await clearer directional signals.

Finally, in the options market, renewed demand for risk management and volatility-arbitrage strategies have driven Bitcoin-denominated options open interest to record highs, suggesting preparations for volatility as December expiry approaches. Analysts indicate this forthcoming expiry might hold significant implications for the market in the near term.