By: Nancy, PANews

---

Bitcoin’s Conundrum: Why Is It Lagging as Traditional Markets Recover, and Is a Cycle Bottom Near?

Since reaching an approximate historical high of $126,000 last October, Bitcoin has been embroiled in a persistent correction, struggling to reclaim its upward trajectory. In recent times, traditional assets such as U.S. equities and gold have spearheaded a market recovery, signaling a gradual resurgence in risk appetite. Yet, Bitcoin has remained stubbornly volatile, failing to synchronize with this broader market rebound.

With ETF capital flowing back into the market and several long-term indicators dipping to historical lows, a crucial question arises: Why has Bitcoin not initiated a recovery rally? Is the current prolonged adjustment indicative of an approaching cycle bottom?

The Divergence: Bitcoin’s Underperformance Amidst Market Recovery

Following a period of intense volatility and rapid pullbacks in late July, capital has begun to re-enter risk assets, propelling a swift rebound in U.S. stock markets. Both the S&P 500 and Dow Jones Industrial Average have substantially recouped prior losses, with both indices achieving new all-time highs this week. Technology stocks, particularly within the semiconductor and AI-related sectors, have emerged as core drivers of this rally, significantly bolstering market sentiment.

Concurrently, the precious metals sector has once again garnered investor interest. Spot gold has posted consecutive gains, briefly surpassing the $4,400 per ounce mark to reach a two-month high. Silver prices have followed suit, with spot silver momentarily rising above the $66 per ounce range, marking a seven-week high.

However, Bitcoin has conspicuously failed to participate in this restorative rally. It displayed similar weakness when risk assets were under pressure, and now, as U.S. stocks and gold demonstrate renewed strength, Bitcoin continues its independent, oscillating price action.

According to CoinGecko data, Bitcoin prices have largely consolidated over the past 30 days, repeatedly fluctuating within the $62,000 to $66,000 range.

Glassnode further underscores this divergence, noting that over the past 90 days, the S&P 500 has appreciated by approximately 5%, while Bitcoin has declined by 20%. A similar pattern of decoupling has been observed over the last seven days. This suggests that until Bitcoin re-establishes a stronger performance relative to U.S. equities, the broader crypto market remains largely influenced by stock market dynamics.

Unpacking On-Chain Activity and ETF Flows

Despite a recent surge in on-chain transaction volumes and a marked improvement in spot ETF capital flows, these inflows have not yet effectively translated into upward price momentum.

Examining on-chain activity, Santiment Intelligence data reveals a significant increase in new BTC wallet addresses, with 2.27 million created in the past week—a one-year high. Active wallet addresses also hit a 10-month record at 751,000. Crucially, a major catalyst for this growth in on-chain activity stems from security concerns triggered by the Coldcard wallet incident. This event prompted some users to transfer funds, create new wallets, adjust custody solutions, and re-evaluate asset security risks, thereby driving a substantial increase in wallet creation and on-chain interactions.

Regarding ETF capital inflows, SoSoValue data indicates that U.S. Bitcoin spot ETFs recorded net inflows for five consecutive trading days last week, totaling $854 million. This marks the best weekly performance since April 17th. Since August, the cumulative net inflow into Bitcoin spot ETFs has quadrupled July’s total, reversing previous pressures from sustained outflows. From May to July, U.S. Bitcoin spot ETFs experienced cumulative net outflows exceeding $6.59 billion, with the market enduring eight consecutive weeks of capital withdrawal. However, the current resurgence in ETF funds has not been sufficient to drive a Bitcoin price rebound. Market analysis suggests that recent inflows are primarily driven by shifts in custody demand and improved interest rate cut expectations due to weaker employment data. The current buying volume is struggling to fully offset persistent selling pressure in the market.

Persistent Selling Pressure and Subdued U.S. Demand

The Bitcoin market currently faces continuous selling pressure from miners and crypto data center (DAT) companies. As profit margins narrow, operational costs rise, and the demand for AI data center transformation increases, some miners are liquidating Bitcoin assets to cover cash flow needs, repay debts, or pivot business strategies. CryptoQuant data shows that the BTC balance held by miner-associated OTC addresses has plummeted by nearly 72% since November 2021, falling from approximately 500,000 BTC to 139,700 BTC.

Similarly, crypto DAT companies are adjusting their Bitcoin holding strategies, selling off portions of their assets to boost liquidity, repurchase shares, or return value to shareholders, with some even liquidating holdings to ensure survival. For instance, Strategy (likely MicroStrategy) has cumulatively sold 6,948 BTC since late June, cashing out approximately $432 million.

Furthermore, U.S. spot market buying power remains subdued. Coinglass data reveals that the Coinbase Bitcoin Premium Index has been in negative territory for 80 consecutive days (from May 19th to present), with the latest reading at -0.0868%. This marks the longest negative premium cycle in history, double the previous 40-day record. Historically, a persistent negative Coinbase premium often signals weak buying demand from U.S. investors or strong selling pressure in the market.

Emerging Bottoming Signals, But Full Confirmation Awaits

Historically, after a cycle peak, Bitcoin typically takes around 12 to 13 months to reach its ultimate bottom. If the current cycle were to follow this historical rhythm, a market cycle low might not be expected until Q4 2026. Given this context, are we seeing any early bottoming signals for Bitcoin?

According to PAData, PANews’ crypto market data and cycle indicator platform, Bitcoin is currently exhibiting only partial bottoming signals.

This indicator list draws from multiple reputable data sources, including CryptoQuant, CoinGlass, Alternative.me, DefiLlama, Dune, and growthepie. The “Distance to Hit Line” metric measures the proximity of the current indicator value to its historical bottoming threshold; a value closer to 0 indicates a closer approach to triggering a historical bottom signal.

Out of 12 core bottoming indicators, four are currently within the “hit” zone, suggesting potential long-term value:

• Reserve Risk (Long-Term Holders): Currently at 0.00108.
• BTC Price / 2-Year Moving Average: Currently at 0.73x.
• AHR999 (Long-Term Dollar-Cost Averaging): Currently at 0.345.
• EVM Sample Chain Active Diffusion Breadth: Currently at 0.

These indicators primarily reflect the confidence of long-term holders, the price’s position within its cycle, and the activity level of the on-chain ecosystem. Their current entry into historical pressure zones suggests that Bitcoin’s price is significantly discounted relative to its long-term trend, indicating increasing value for long-term allocation.

However, an indicator entering a pressure zone does not automatically mean the market has bottomed. Historical cycles demonstrate that Bitcoin bottoms are rarely triggered by a single indicator but rather emerge when multiple dimensions simultaneously reach extreme levels.

Currently, metrics related to valuation, market sentiment, capital liquidity, and on-chain profitability suggest that the market is still some distance from a historical extreme bottom:

• Valuation: The MVRV Ratio (on-chain valuation) stands at 1.212, which has not yet fallen below the historical undervaluation line of 1. The MVRV assesses the overall profitability of the market by comparing Bitcoin’s market value to its realized value. Historically, a drop below 1 typically signifies a deep correction phase, often correlating with the accumulation zone in the later stages of a bear market.
• On-Chain Profitability: The NUPL (Net Unrealized Profit/Loss) is at 0.175 and has not yet turned negative. This metric measures the net unrealized profit and loss across the market; a NUPL below 0 indicates that the majority of holders are collectively in a loss-making state. Concurrently, the Puell Multiple, a miner revenue indicator, is at 0.755, still some distance from the historical pressure zone below 0.5. Significant macro bottoms have historically occurred when the Puell Multiple dropped below 0.5.
• Market Sentiment: The Fear & Greed Index is at 29, indicating a state of fear. However, it is not yet at “extreme fear” levels. This suggests that investor risk appetite is declining, but the widespread panic selling typical of cycle bottoms has not yet materialized.
• Supply Structure: The percentage of supply in profit remains at 53.12%, meaning over half of Bitcoin’s supply is still profitable. During historical bottom phases, this indicator typically falls below 5%, suggesting the market often requires a more thorough release of losses and transfer of ownership.
• Liquidity: The Stablecoin Liquidity Impulse is at -0.74%, indicating a contraction in the stablecoin funding environment. Historically, when this indicator falls below -2%, it often corresponds to a significant 30-day reduction in fiat-backed stablecoin supply, intensifying market liquidity pressure. Currently, the indicator is still some distance from this extreme contraction zone.

Furthermore, several on-chain ecosystem indicators have not yet shown comprehensive bottoming signals:

• DeFi Fundamental Diffusion Breadth: At 38.55%, it is still some distance from the deep contraction zone (0-25%). This metric measures the diffusion of DeFi operational activities; a low reading typically indicates a widespread contraction in industry activity.
• Cross-Chain MEME Risk Appetite Index: At 32.66, it is above the “cooling zone” (0-20) hit boundary. While market risk appetite has clearly decreased, capital has not fully entered an extremely quiet or “cold” state.

Conclusion: Awaiting Full Cycle Reversal Confirmation

In summary, while Bitcoin is displaying some early market bottom signals, the broader market still lacks sufficient confirmation for a full cycle reversal. For Bitcoin to embark on a sustained recovery rally, continued monitoring of sustained capital inflows, the dissipation of selling pressure, and further shifts in key on-chain indicators will be crucial.

---

(The above content is an excerpt and reproduction authorized by our partner PANews. Original Link)