Bitcoin Retreats Below Key Cost Basis as Long-Term Holders Cash Out: Analyzing the Market Rotation
Introduction: Bitcoin's Momentum Shift Signals Market Exhaustion
After months of steady gains culminating in a record high above $126,000, Bitcoin is experiencing a significant momentum shift. As of Friday afternoon, Hong Kong time on October 24, 2025, BTC was trading at $111,328.89, representing a 2% gain over the previous week according to CoinDesk market data. However, this modest weekly gain masks a more concerning trend: Bitcoin has retreated below crucial cost-basis levels that typically separate bullish momentum from consolidation phases. The current market dynamic is characterized by long-term holders selling into strength, capital rotating from spot markets to defensive derivatives positioning, and key technical levels failing to hold support. This convergence of factors suggests the market is undergoing a structural shift similar to patterns observed in 2021 and mid-2022, where speculative leverage began replacing spot market conviction.
Market Structure Breakdown: Understanding the Cost Basis Threshold
Glassnode's recent analysis identifies the short-term holders' cost basis around $113,000 as the critical dividing line between renewed strength and deeper consolidation. This metric represents the average acquisition price for investors who have held Bitcoin for less than 155 days. When Bitcoin trades above this level, recent buyers remain in profit, creating positive sentiment and supporting further buying. However, falling below this threshold signals that recent buyers are now sitting on losses, which erodes confidence and forces weaker hands to capitulate.
The repeated breakdowns below this key quantile provide evidence of market exhaustion after months of steady appreciation. Glassnode frames these repeated breaches as significant because they represent psychological and technical support levels that previously fueled rallies. The firm warns that if Bitcoin fails to reclaim the $113,000 level, losses could deepen toward the $108,000–$97,000 range. Historically, when 15%–25% of Bitcoin supply becomes unprofitable within this range, it creates additional selling pressure as investors seek to minimize losses.
Long-Term Holder Distribution: The Silent Momentum Killer
While much attention focuses on short-term trader behavior, long-term holders have been systematically distributing their holdings at a pace exceeding 22,000 BTC per day since July. This persistent selling into strength continues to sap momentum and weighs on any sustained recovery attempt. Long-term holders—typically defined as addresses holding Bitcoin for more than 155 days—represent the most committed segment of Bitcoin investors. Their decision to take profits at current levels indicates that even the most steadfast believers see current valuations as attractive exit points.
This distribution pattern mirrors behavior seen during previous cycle tops, where long-term holders gradually transfer coins to newer entrants. However, unlike dramatic exchange hacks or regulatory announcements that cause sharp price drops, this type of distribution creates steady downward pressure that can persist for weeks or months. The consistency of this selling—maintained daily since July—suggests a coordinated profit-taking strategy rather than panic-driven liquidation.
Capital Rotation: From Spot Markets to Derivatives
Both Glassnode and CryptoQuant observe a significant rotation of capital within cryptocurrency markets rather than a wholesale exit from digital assets. CryptoQuant's data shows ETF inflows cooling after months of accumulation while exchange reserves are rising again—a sign that traders are preparing to sell into volatility rather than accumulate for long-term holding.
This capital migration toward futures and options markets represents a fundamental shift in market structure. As volatility premiums have surged in derivatives markets, liquidity has followed. CryptoQuant characterizes this as liquidity staying within crypto's ecosystem but rotating through different instruments as investors wait for clearer macro or policy signals before committing new capital to spot markets.
The structural shift toward derivatives dominance mirrors patterns observed in 2021 and mid-2022, when speculative leverage replaced spot conviction as the primary market driver. During these periods, price action became increasingly detached from fundamental developments and more responsive to leverage flows and funding rate dynamics.
Defensive Derivatives Positioning: Hedging Replaces Speculation
Options market data reveals a market increasingly focused on risk management rather than directional speculation. Glassnode reports record-high open interest as traders increasingly rely on derivatives to hedge existing positions rather than bet on further upside. Put demand has risen across maturities, indicating growing concern about potential downside moves.
This defensive positioning creates a self-reinforcing dynamic. Glassnode notes that market makers' hedging activities have tended to smooth short-term price action, with these institutional participants selling into rallies and buying dips to maintain delta neutrality. This mechanical trading approach caps rallies through automatic selling when prices rise and provides temporary support through buying when prices fall.
Elevated volatility and heavy put demand are keeping the market range-bound, with rallies consistently capped by hedging flows rather than organic buying interest. These dynamics have left Bitcoin in a state of limbo where price action is shaped more by risk management protocols than by directional conviction about Bitcoin's fundamental value or future prospects.
Historical Parallels: Learning From Previous Cycles
The current market structure shows striking similarities to periods in 2021 and mid-2022 when speculative leverage began dominating spot market flows. During these previous episodes, Bitcoin experienced extended consolidation phases characterized by declining volatility despite elevated derivatives activity. The migration of liquidity from spot to derivatives markets typically preceded significant trend changes, though the direction of those trends depended heavily on broader macroeconomic conditions.
CryptoQuant's analysis suggests that the current consolidation may represent a healthy breather after months of strong appreciation rather than the beginning of a sustained bear market. The firm notes that similar rotations occurred throughout Bitcoin's history without necessarily derailing long-term bull markets. The critical factor distinguishing temporary consolidations from prolonged downturns has historically been whether capital remains within the crypto ecosystem or exits entirely.
ETF Flow Dynamics: The Institutional Temperature Check
The cooling of ETF inflows after months of consistent accumulation provides important insight into institutional sentiment. These products, which had served as reliable sources of buying pressure throughout much of 2025, are now seeing diminished interest amid the current uncertainty. CryptoQuant's data shows this slowdown correlates with increasing exchange reserves, suggesting that even institutional participants are becoming more cautious about adding exposure at current levels.
The relationship between ETF flows and price action has become increasingly significant throughout 2025. During periods of strong inflows, Bitcoin consistently appreciated as new demand outstripped available supply. The current stagnation in ETF interest removes a crucial support pillar that had previously propelled prices to record highs.
Broader Market Context: Volatility as the Traded Asset
Perhaps the most telling development in the current market phase is that volatility itself has become the primary traded asset. With directional conviction waning among both retail and institutional participants, traders are increasingly positioning around expected price swings rather than outright directional moves. This represents a maturation of cryptocurrency markets but also introduces unique challenges for price discovery.
Both Glassnode and CryptoQuant suggest that this volatility-focused trading environment is likely to persist until either spot demand recovers or derivatives positioning becomes less defensive. The current preference for trading volatility over direction reflects uncertainty about both cryptocurrency-specific factors and broader macroeconomic conditions.
Strategic Conclusion: Navigating the Rotation Phase
The current Bitcoin market presents a complex picture of rotation rather than collapse. While prices have retreated below key cost basis levels and long-term holders are distributing their holdings, capital remains within the cryptocurrency ecosystem—it's simply migrating from spot markets to derivatives instruments. This suggests underlying confidence in Bitcoin's long-term value proposition despite short-term uncertainty.
For market participants, several developments warrant close monitoring in coming weeks. The ability of Bitcoin to reclaim the $113,000 short-term holder cost basis will be crucial for restoring bullish momentum. Additionally, signs of renewed ETF inflows or decreasing long-term holder distribution could signal that the consolidation phase is ending.
Both Glassnode and CryptoQuant suggest that a meaningful recovery will require renewed spot demand alongside calmer derivatives activity—conditions that may depend heavily on Federal Reserve policy decisions or clearer macroeconomic signals. Until these catalysts emerge, Bitcoin appears likely to continue trading in a range defined by derivatives hedging flows rather than organic spot market conviction.
The current phase represents an important test for Bitcoin's market structure maturity. Previous cycles saw similar rotations between spot and derivatives dominance, with the resolution typically determining the next sustained trend. For now, volatility remains the market's favorite asset class—but as historical patterns suggest, even traders eventually tire of trading fear alone.
Market data referenced in this article was current as of October 24, 2025, Hong Kong time, based on CoinDesk pricing and analysis from Glassnode and CryptoQuant.