Bitcoin Drops 13% as Bear Market Enters Later Stage

Original author: Glassnode

AididiaoJP, Foresight News

Bitcoin fell 13% this week, leading to a sharp collapse in profitability and a surge in realized losses, as spot sellers regained control. U.S. spot ETF investors, after encountering resistance near their cost basis, have slipped back into unrealized losses, while the options market continues to price in high risk.

• Bitcoin has declined 13% over the past seven days, retracing to the midpoint between its realized price and the true market average. The short-term holder cost basis has fallen below the true market average for the first time since January 2022, confirming characteristics of a late-stage bear market.
• The 7-day moving average of realized PnL plunged from a local high of 3.16 to 0.29, closely mirroring the February panic phase; meanwhile, the 90-day moving average never broke above the 2 threshold, confirming that the $82K rebound was merely a bear market rally, not a structural turning point.
• Daily realized losses surged to $1.35 billion, with $770 million stemming from long-term holders selling at cycle peaks, indicating that the supply redistribution process is accelerating but remains incomplete.
• Bitcoin nearly exacted rejection near the overall cost basis of the U.S. spot ETF at $83K, pushing average ETF investors back into unrealized losses, reinforcing this level as a key upper resistance.
• Selling pressure in the spot market has intensified, with the 7-day spot trading volume Delta turning significantly negative to its weakest level since February, indicating that sellers continue to dominate the order book despite the pullback.
• Implied volatility has continued to compress, while the volatility risk premium has widened, causing the options market to price in higher future volatility than recent actual market performance suggests.
• Skew remains in the put premium zone, but recent selling has not triggered a significant increase in downside hedging demand.
• Market makers' positions are concentrated near the current spot price; Bitcoin is currently in the maximum negative gamma zone, with sustained flow favoring protective demand.

U.S. job openings rose to 7.62 million in April, the highest level in nearly two years and 750,000 above market expectations. The 10-year U.S. Treasury yield rebounded above 4.45%, with markets pricing in over a 50% chance of a Fed rate hike by year-end and no expectations of any rate cuts for the year. The U.S. Dollar Index held above 99, indicating that financial conditions are marginally tightening rather than easing.

Bitcoin has absorbed this shift more strongly than any other risk asset, with its price falling 13% over the past week to the $67,000 range. U.S. spot ETFs have experienced three consecutive weeks of outflows totaling $4.21 billion, marking the largest institutional redemption wave since 2026. Institutions are de-risking ahead of price declines rather than reacting afterward. Friday’s non-farm payrolls data will be a key observation point: strong data will sustain current distribution pressure, while weak data could provide the first conditions for a reset.

Return to the bear market range

The aforementioned macro headwinds have directly translated into a deterioration of on-chain metrics. Last week's 13% decline pulled the price back from the true market average of $77.8K, which tracks the cost basis of active supply and has historically served as the dividing line between bear and bull markets. At the current price of $67K, situated midway within this range, the failure to hold above the true market average further confirms that the continuation of the bear market remains the dominant trend.

Notably, the cost basis of short-term holders has now dropped to $76.4K, falling below the true market average—a configuration last seen in January 2022. This setup indicates that new buyers are accumulating below key market valuation levels, a characteristic typical of the late stages of a bear market: as the duration of the pullback begins to test investor conviction, structural breakdowns or large-scale capitulation have historically been more likely at this stage.

Profitability tends to collapse during downturns.

Building on the deterioration of the aforementioned structure, the short-term funding flow environment has sharply shifted due to recent price declines. The 7-day moving average of the realized profit-loss ratio has contracted to 0.29, indicating that realized losses are overwhelmingly dominating on-chain spending behavior. This closely mirrors the panic phase observed in early February. On May 7, this 7-day moving average had surged to 3.16 as investors realized profits during the rally to $82K, but the 90-day moving average never breached the threshold of 2, which corresponds to genuine bull-market funding flows. This divergence between short-term and medium-to-long-term readings is a clear signal of a lack of structural conviction in the rally, consistent with a local top pattern in a bear market rather than a credible structural shift. The subsequent decline back to 0.29 further confirms this assessment.

New buyers are under pressure

The resistance from the bear market top range has directly exposed recently accumulated supply to the loss zone. The heatmap of the short-term holder cost basis distribution reveals the density of supply across different price ranges, highlighting where the short-term holder cost basis is concentrated—the areas most likely to experience behavioral pressure.

As the price retreats toward the $67k level, it is approaching the lower boundary of the supply cluster accumulated since February. In this region, a large number of short-term holders are seeing their unrealized gains compressed to breakeven or even turned into losses. Those who accumulated near the local peak of $78k–$82k are facing the most immediate pressure—whether they choose to hold or sell will determine whether the current price level can absorb selling pressure or give way to a deeper decline.

Loss realization is accelerating across all groups.

As recent buyers have been pushed back to the lower end of the three-month range, the pressure of realized losses has expanded from the latest accumulated supply to a broader scope. The current pullback to $67K has pushed the total daily realized losses to $1.35 billion, significantly accelerating compared to the baseline during the prior consolidation period.

Of this amount, $770 million daily comes from long-term holders who bought before January 2026, reflecting that buyers at cycle peaks are continuing to sell at a loss as the bear market extends. The remainder stems from recent buyers who accumulated between $67K and $82K in 2026 and are now being forced to exit at a loss as prices fall below their cost basis.

As the bear market matures, this pattern of long-term holders selling at a loss and transferring supply to new buyers at lower prices is a recurring and necessary feature of the cycle’s bottoming process. However, the current pace of realized losses indicates that this process is not yet complete.

Fell below the ETF cost basis

Bitcoin's latest rebound nearly stalled precisely near the aggregated U.S. spot ETF cost basis of $83K, turning the previous support level into a clear resistance. This suggests that a significant number of ETF investors who were previously underwater took the opportunity to reduce positions or exit at breakeven.

This rejection is particularly notable because ETF cash flows have been one of the primary sources of demand in this cycle. When price struggles to reclaim the average holder’s cost basis, it often indicates that supply from underwater investors is exceeding new demand, creating upward resistance.

Looking ahead, the aggregated ETF cost basis remains a key level to watch. A decisive reclaim would bring average ETF investors back into profitability and may improve overall sentiment among this group. Until then, failure to hold above this level suggests that ETF positioning remains a headwind, with investors continuing to de-risk during strength rather than accumulate.

Spot buy orders have disappeared

Spot market funding has deteriorated sharply over the past two weeks, with 7-day spot volume turning negative and reaching its weakest level since the February sell-off. This indicates that aggressive sellers are once again dominating the spot order book, further reinforcing the weakness in recent price movements.

What makes this current movement notable is that it follows a prolonged period of spot-dominated accumulation in April and early May. During that rally, buyers consistently lifted selling pressure, pushing spot volume into positive territory and helping Bitcoin rebound from the mid-60s to $80K. That demand pulse has now faded, and with price failing to break higher, sellers have regained control.

A consistently negative spot trading volume Delta is typically accompanied by either a capitulation event or the early stage of a broader trend reversal. Currently, this suggests the market remains in a distribution phase, with spot participants using rallies to sell rather than accumulate. A significant improvement in spot demand remains one of the key signals supporting a sustainable recovery.

Futures liquidation

The latest market correction triggered one of the largest liquidation events of this cycle, with over $400 million in leveraged long positions forced out as Bitcoin dropped below $70,000. While painful for late entrants, such events often purge excess leverage from the system and reset market positioning.

Notably, the scale of this liquidation remains below those observed during the corrections in October 2025 and February 2026, indicating that leverage was not excessively inflated prior to this decline. Historically, large-scale long liquidations often coincide with local exhaustion points, as forced selling pressure cascades through derivative markets and clears weak positions.

The key future question is whether spot demand can step in to absorb the supply. If liquidation-driven selling pressure begins to ease and spot buyers return, the market could develop a cleaner positioning backdrop with lower leverage exposure, creating conditions for a more sustainable recovery.

Implied volatility continues to decline

Looking at implied volatility, despite the spot breakout, the dominant trend remains a compression across the entire term structure. The one-month term has declined from approximately 38% to 34%, and both the three-month and six-month terms have also compressed by about three volatility points over the past two weeks.

This trend reflects the market's reluctance to pay a premium for options, even after Bitcoin fell below the lower end of its recent range. Although front-month volatility briefly reacted to the sharp spot price movements, these were quickly sold off, sustaining the broader downward trend.

The term structure remains in contango, with forward volatilities still trading at a premium over front-end levels. This indicates that traders continue to view recent price weakness as a localized event rather than a catalyst for broader volatility repricing.

Volatility sellers still dominate, as demand for protection has not accelerated despite weakening prices.

Volatility risk premium near three-month high

As implied volatility has declined, the relationship between implied and realized volatility tells a different story. Despite Bitcoin experiencing a period of volatility, the options market has continued to price in future volatility significantly higher than recent spot realized volatility.

The one-month implied volatility has rebounded to approximately 42%, while the realized volatility remains near 32%. As a result, the volatility risk premium has expanded to levels near the highest seen over the past three months.

This shift was particularly evident during the recent sell-off. Although realized volatility rebounded when spot prices broke key support levels, implied volatility rose even faster, reflecting increased demand for options and protective strategies.

The options market continues to assign a higher probability to future volatility than what recent price behavior alone suggests, keeping the volatility premium at a significantly elevated level.

Put option premiums remain elevated.

As the volatility risk premium widens, skew indicates that traders continue to concentrate their options demand where. Despite the spot breakout, put options remain consistently more expensive than call options across the entire term structure.

Bitcoin's latest decline further reinforces the view that the market remains fragile, with signs of weakness evident across profitability, investor behavior, ETF holdings, and spot market demand. The total cost basis for ETFs is encountering resistance near $83,000, indicating that many investors remain stuck above current prices, leading to selling pressure at higher levels and continuing to suppress Bitcoin's rebound.

Meanwhile, realized losses have accelerated, and long-term holders have begun large-scale selling, causing spot order flow to clearly shift toward the sellers. Although recent liquidation events have helped remove leverage from the system, there is currently little evidence of a sustained demand response capable of absorbing the resulting supply.

The options market shows a similar pattern. Traders are still paying for downside protection and future volatility, but there is no panic typically associated with sharp declines. Until spot demand strengthens, ETF investors regain profitability, and selling pressure begins to ease, the market may still face further downside risk and continue consolidating within a broader bearish structure.