Cwallet Weekly Crypto Express | Market Sentiment Takes a Sharp U-Turn

Executive Summary

• Bitcoin's rally to a new all-time high at $126.1k reversed amid macro tensions and a $19B futures deleveraging, one of the largest in history. The drop below the $117k–$114k cost-basis zone placed top buyers in loss and exposed renewed market fragility.
• On-chain data show continued Long-Term Holder distribution since July and weaker ETF inflows (-2.3k BTC this week), indicating fading institutional demand. Meanwhile, spot markets experienced a sharp but orderly sell-off, with Binance-driven selling partially offset by buying on Coinbase.
• Futures markets underwent a historic leverage flush, with the Estimated Leverage Ratio collapsing to multi-month lows and funding rates plunging to 2022 FTX levels, signalling peak fear and forced liquidations.
• In the options market, open interest and volume rebounded quickly, but volatility spiked to 76%, and short-dated skew flipped to +17% put-rich before stabilizing. The market remains in a reset phase, awaiting renewed demand to confirm recovery.

On-Chain Insights

Bitcoin’s rally above the $114k–$117k supply cluster culminated in a new all-time high at $126.1k before losing momentum. The renewed sell pressure, amplified by concerns over escalating U.S.–China tariff tensions, triggered a sharp market-wide deleveraging, with futures open interest contracting by more than $19B.In this edition, we examine the aftermath of this correction through both on-chain and off-chain lenses to assess the current state of market sentiment and structural resilience.

From Euphoria to Fragility

This latest contraction is particularly concerning, as it marks the third instance since late August where Bitcoin’s spot price has dipped below the 0.95-quantile price model ($117.1k)—a level where over 5% of supply, primarily held by top buyers, sits at a loss. Price now resides within the 0.85–0.95 quantile range ($108.4k–$117.1k), retracing from the euphoric phase of the recent rally.

Without a renewed catalyst to lift prices back above $117.1k, the market risks deeper contraction toward the lower boundary of this range. Historically, when price fails to hold this zone, it has often preceded prolonged mid- to long-term corrections, making a sustained drop below $108k a critical warning signal of structural weakness.

Long-Term Holders Continue to Distribute

Adding to the market’s inability to sustain its euphoric phase, the persistent Long-Term Holder (LTH) distribution since July 2025 has further constrained upside momentum. During this period, the LTH supply has declined by roughly 0.3M BTC, highlighting steady profit realization among mature investors. This ongoing sell-side pressure underscores the risk of demand exhaustion, with the market likely to enter a consolidation phase. Should distribution persist without a corresponding inflow of new demand, periodic corrections or localized capitulation events may emerge before equilibrium is restored.

Off-Chain Insights

ETF Flows Lose Momentum

Following the largest liquidation event in Bitcoin’s history, U.S. spot ETF flows have weakened in tandem with price. While the derivatives market underwent extreme deleveraging, ETF investors also showed mild selling pressure, with cumulative netflow turning negative by 2.3k BTC so far this week. This behavior contrasts with prior capitulation phases, where outflows typically accelerated alongside price declines.

The current moderation suggests hesitation rather than panic. However, sustained weakness or a prolonged delay in ETF inflows returning to strength would signal demand-side fragility, undermining one of the key drivers behind Bitcoin’s prior rallies.

Spot Selling Pressure

During the recent liquidation cascade, spot trading volumes surged sharply, marking one of the highest levels recorded this year. The spike reflects intense market activity as traders rushed to adjust positions amid heightened volatility.

Pairing this spike in spot volume with the Cumulative Volume Delta Bias (CVDB) — which measures deviations from the 90-day median of cumulative trade flow — reveals a notable divergence across major exchanges. Binance faced heavy taker sell pressure, while Coinbase saw net buying activity, suggesting institutional participants were absorbing supply on U.S. venues.

The aggregated CVDB shows only a mild net sell bias, far less severe than the sharp spot capitulation observed in late February 2025. This indicates that, despite elevated volatility, the recent drawdown reflected localized deleveraging rather than a broad investor exit.

A Futures Market Breakdown

The recent collapse in Bitcoin futures open interest ranks among the largest single-day contractions on record, erasing more than $10 billion in notional positions. This marks a major derivatives market flush-out, comparable in magnitude to the May 2021 liquidation and the 2022 FTX unwind.

The steep decline reflects widespread forced deleveraging, as margin calls triggered liquidations across both long and short positions. Notably, with Bitcoin’s price still holding above key on-chain support, the event appears to be driven primarily by leverage compression rather than broad spot selling — a structural reset rather than a full capitulation.

Historic Leverage Flush

Following the sharp contraction in futures open interest, the Estimated Leverage Ratio, open interest relative to exchange balances, also collapsed to multi-month lows. This historic deleveraging event cleared excessive leverage across the system, marking one of the largest single-session resets on record.

The magnitude of the drop suggests widespread unwinding of positions, also extending to altcoin markets. While painful, such flush-outs help reduce systemic risk and lay the groundwork for a more stable market structure ahead.

Funding Rates Plunge to 2022 FTX Levels

Following the historic leverage flush, the futures market stress deepened as funding rates collapsed to levels not seen since the FTX fallout in late 2022.

Across perpetual futures, annualized funding briefly turned sharply negative, showing traders paying a premium to stay short after bullish leverage was wiped out. This marks a complete sentiment reversal, with participants rapidly de-risking amid forced liquidations. Historically, such extreme funding resets have coincided with peak fear and the final stages of deleveraging, often cleansing excess leverage and restoring balance for a healthier recovery phase in the mid-term.

Conclusion

Bitcoin’s rally to a new all-time high at $126.1k quickly reversed as macro stress and extreme leverage triggered one of the largest $19B deleveraging events in derivatives history.

The drop below the $117k–$114k cost-basis cluster placed top buyers back in loss, reinforcing near-term fragility. On-chain data point to cooling demand and continued LTH distribution, while ETF inflows have weakened, a sign of softening institutional appetite. Spot markets showed a controlled sell-off, and futures markets underwent a historic leverage flush, resetting systemic risk.

In the options market, open interest and volume rebounded swiftly, but volatility spiked, skew flipped sharply positive, and traders rushed to hedge. Despite rapid stabilization, the market remains in a reset phase, where renewed ETF inflows and sustained on-chain accumulation will be key to restoring confidence and confirming a durable recovery.

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