Cwallet Weekly Crypto Express | Over 25% of BTC Supply Is Now Underwater

Executive Summary

• Bitcoin stabilizes above the True Market Mean, but the broader structure now resembles Q1 2022 with >25% of supply underwater.
• Capital momentum remains positive, supporting consolidation, though far below mid-2025 peaks.
• 0.75–0.85 quantile band ($96.1K–$106K) is the key zone for restoring structure; failure increases downside risk.
• ETF flows turn negative, and spot CVD rolls over, signalling weakening demand.
• Futures open interest declines and funding resets neutral, reflecting a risk-off stance.
• Options market sees IV compression, softer skew, and flows shifting from puts to cautious call selling.
• Options appear underpriced, with realised volatility exceeding implied, putting pressure on short-gamma traders.
• Overall, the market remains fragile, dependent on holding key cost-basis zones unless macro shocks break the balance.

On-Chain Insights

Bottom or Breakdown?

Over the past two weeks, Bitcoin has dropped toward and found support near a critical valuation anchor known as the True Market Mean — the cost basis of all non-dormant coins, excluding miners. This level often marks the dividing line between a mild bearish phase and a deep bear market. Although price has recently stabilized above this threshold, the broader market structure is increasingly echoing the dynamics of Q1 2022.

Using the Supply Quantiles Cost Basis Model, which tracks the cost basis of supply clusters held by top buyers, the resemblance becomes clearer. Since mid-November, spot price has fallen below the 0.75 quantile, now trading near $96.1K, placing more than 25% of supply underwater.

This creates a fragile balance between the risk of top-buyer capitulation and the potential for seller exhaustion to form a bottom. Nevertheless, the current structure remains highly sensitive to macro shocks until the market can reclaim the 0.85 quantile (~$106.2K) as support.

Pain Dominates

Building on this structural view, we can zoom in on the top-buyer supply to gauge the dominance of loss, and therefore unrealized pain, using Total Supply in Loss. The 7D-SMA of this metric climbed to 7.1M BTC last week — the highest level since September 2023 — highlighting that more than two years of bull market price expansion now sit against two shallow bottom-formation phases.

The current scale of supply in loss, ranging between 5M–7M BTC, is strikingly similar to the early-2022 sideways market, further reinforcing the resemblance noted above. This comparison once again underscores the True Market Mean as the key threshold separating a mild bearish phase from a transition into a more definitive bear market.

Momentum Remains Positive

Despite the strong similarities to Q1 2022, the momentum of capital flowing into Bitcoin remains slightly positive, helping explain the support at the True Market Mean and the subsequent recovery above $90K. This capital momentum can be measured using the Net Change in Realized Cap, which currently sits at +$8.69B per month — far below the $64.3B/month peak of July 2025, yet still decisively positive.As long as capital momentum remains above zero, the True Market Mean can continue to serve as a consolidation area and potential bottom formation zone, rather than the beginning of a deeper breakdown.

Long-Term Margins Fade

Remaining in a regime of positive capital inflow implies that new demand is still able to absorb the profit realization by long-term investors. The Long-Term Holder SOPR (30D-SMA), which measures the ratio between spot price and the cost basis of long-term holders who are actively spending, has declined sharply alongside price but remains above 1 (currently 1.43). This emerging trend in profit margins once again mirrors the Q1 2022 structure: long-term holders continue to spend in profit, but at a shrinking margin.

Although demand momentum is comparatively stronger than in early 2022, liquidity continues to trend lower, making it essential for bulls to hold above the True Market Mean until a new wave of demand enters the market.

Off-Chain Insights

ETF Demand Softens

Turning to spot markets, US Bitcoin ETFs have seen a notable deterioration in net flows, with the 3-day average slipping firmly into negative territory throughout November. This marks a clear reversal from the persistent inflow regime that supported price earlier in the year, and reflects a cooling of new capital allocation into the asset. Outflows have been broad-based across issuers, indicating a more cautious stance from institutional participants as market conditions have weakened.

The spot market now faces a lighter demand backdrop, which reduces immediate buy-side support and leaves price more sensitive to external shocks and macro-driven volatility.

Spot Bid Weakens

Building on the deterioration in ETF demand, Cumulative Volume Delta (CVD) has also rolled over across major exchanges, with both Binance and the aggregated cohort trending persistently negative. This points to a steady increase in taker-driven sell pressure, as traders cross the spread to reduce risk rather than accumulate. Even Coinbase, often a bellwether for U.S. bid strength, has flattened, signalling a broader retreat in spot-side conviction.

With both ETF flows and spot CVD bias turning defensive, the market now rests on a thinner demand foundation, leaving price more vulnerable to continuation moves and macro-driven volatility.

Open Interest Slips Lower

Extending this weakening demand profile into derivatives, futures open interest has continued its steady decline through late November. The unwind has been orderly but persistent, erasing much of the speculative build-up that accumulated during the prior uptrend. With no meaningful new leverage entering the market, traders appear reluctant to express directional conviction, instead favouring a conservative, risk-off stance as price grinds lower.

The derivatives complex now sits in a notably lighter state of leverage, signalling a clear absence of speculative appetite and reducing the probability of sharp, liquidation-driven volatility.

Conclusion

Bitcoin continues to trade within a structurally fragile environment where on-chain weakness and thinning demand intersect with a more cautious derivatives landscape. Price has briefly stabilized above the True Market Mean, yet the broader structure now closely resembles Q1 2022, with over 25% of supply underwater, rising realized losses, and heightened sensitivity to macro shocks. Positive capital momentum, though much softer than earlier in the year, remains one of the few constructive signals preventing a deeper breakdown.

Off-chain indicators reinforce this defensive tone. ETF flows have turned negative, spot CVD has rolled over, and futures open interest is steadily unwinding. Funding rates sit near neutral, reflecting neither bullish conviction nor aggressive short pressure. In the options market, implied volatility has compressed, skew has softened, flows have reversed, and options currently trade underpriced relative to realised volatility, signalling caution rather than renewed risk appetite.

Looking ahead, holding within the 0.75–0.85 quantile band ($96.1K–$106K) is critical for stabilizing market structure and reducing downside vulnerability into year-end. Conversely, the True Market Mean continues to serve as the most probable bottom-formation zone, unless a negative macro catalyst disrupts the market’s already delicate equilibrium.

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