Written by: glassnode

Translated by: AididiaoJP, Foresight News

The government bond yield has only exceeded crypto arbitrage trading for the second time, and the downstream market has fallen silent: the spot trading volume has hit the lowest level since 2019, exchange capital flows have almost stagnated, and the sell orders on the order book have thinned significantly. The scale of this retracement is very shallow, and its duration has yet to catch up with the previous bear market clocks.

Summary

• The bond market has stopped pricing in interest rate cuts and has shifted to pricing in rate hikes.
• The government bond yield has exceeded crypto arbitrage trading, explaining why marginal buying has chosen to stay in cash.
• The spot is standing on the heaviest cost basis shelf on the chart, with a breakeven line at $69,000 above.
• By depth measurement, this is the shallowest bear market on record, and the duration has not yet reached previous levels.
• Exchange capital flow, spot trading volume, and ETF buying have all fallen silent.
• Hedge positions were sold at the top of the rebound and have started to flow back within a week.
• Buying is waiting far below the spot, and the sell side has thinned. The vector readings indicate Risk Off.

Macro Insights

Leading advantage has been handed back

Last week, Bitcoin outperformed the stock indices, digesting the impact of crude oil (the stock market was almost unchanged), and both closed ahead. This relative strength has faded this week. Bitcoin declined throughout the week, while US and European stock markets remained stagnant, with a turning point occurring on Monday: since that trading day, Bitcoin has not been aligned with the stock market. Crude oil also gave back last week's gains, making it the weakest performer among the four.

A week of relative weakness does not constitute a regime shift. However, it did take away one of the few supports during the June repair phase—at that time, Bitcoin was still being bought on days when stock indices were not moving.

The bond market has been pricing in rate hikes

The FOMC decides today, but the bond market had already made up its mind. The 2-year government bond yield (the cleanest reading of policy paths) has been above the federal funds rate since April, with the spread being the widest since November 2022. This is not pricing in rate cuts; it leans toward the next action being a rate hike.

If a rate cut happens today, it will catch most positions off guard, aligning with the moderately core inflation data mentioned in last week's report. The market's reaction is more important than the decision itself: if unexpected good news still cannot hold buying, it indicates the absence of marginal buyers rather than the decision itself.

Where has the buying gone

The US dollar has continued to strengthen since May, and Bitcoin's digestion of this round of dollar appreciation is nearly the worst on record. In typical precedents since 2015, Bitcoin has risen to this stage; this time, it is deeply trapped in negative yields, with only 3 out of the past 20 similar upswings being worse.

The second channel is more mechanical. The three-month futures basis (anchoring the return rate of cash arbitrage trading in the crypto market) has been below the 2-year government bonds since February. Historically, there has only been one period this long—running from August 2022 to January 2023, ending at the cycle's bottom.

When government bond yields exceed the basis, those trading desks providing leverage, depth, and volume to the market have little reason to stay here. Many phenomena in the subsequent off-chain part can be traced back to this price difference.

On-chain Insights

Standing on the heaviest shelf

Bitcoin is trading within the heaviest single cluster on the cost basis distribution map—about the $62,000 to $68,000 range, where the volume of coins traded exceeds any other location on the chart. This range is almost split in half. One half belongs to short-term holders who bought during this year's decline; the other half belongs to long-term holders who have held through it all.

The half belonging to long-term holders is patient supply, usually acting like a floor. The half belonging to short-term holders is more sensitive and mostly in a floating loss state, so they tend to be the first to supply during rebounds. Above, the cost basis for short-term holders is at $69,000, which remains a key line in determining the next leg of the market; the true supply wall further up is the barrier of long-term holders between $83,000 and $86,000.

Shallow amplitude, time has not yet come

The conclusions from the two indicators measuring this bear market are consistent. Relative to the 200-day moving average, no previous bear market has pressed the price so close to the trend: this cycle's deepest discount is still far less than the depth of the previously mildest bear market. In terms of historical high point retracement amplitude, the picture is similar—previous bear market bottoms are all far below the trading range to date in this cycle.

Looking at the 200-day perspective, time is the other half of the story. Bitcoin has stayed below this moving average for about three-quarters of the duration typical of previous bear markets, most of which lasted longer. Such a gentle retracement has not yet completed the time required by previous cycles, which further supports the patience to wait rather than hastily announcing a bottom—especially for those still operating according to a four-year cycle map.

Exchange outflow has slowed

Deposits and withdrawals on exchanges have thinned simultaneously. Both ends are currently operating at approximately the same gentle pace, constituting one of the quietest comprehensive flows in the past three years, far lower than the norm for 2023-2025. The balances give similar signals from the other side: they have slowly rebounded since the April low and have been basically stable since the beginning of July.

This reads more like indifference rather than distribution or accumulation—this pattern often appears in the quiet mid-phase of a bear market. Such little on-chain movement means that once demand changes, there is almost no available supply to absorb it.

Off-chain Insights

ETF buying has entered a lull

The US spot ETF capital flow turned positive in mid-July, only to quickly drop back within the following week. Net inflow has turned slightly negative again, compared to the redemption wave in June and early July, with the current outflow being almost negligible.

The institutional channel is neither dumping nor ramping up. After the reversal last week, what truly deserves attention is consistency rather than scale, and consistency has not emerged.

Excitement at the peak

The downside protection cost crashed to almost zero on July 21—on the same day Bitcoin reached a local peak after rebounding from June lows. Hedge positions were sold at the peak, and the accompanying deleveraging during the rebound made the market tilt directly toward the subsequent decline.

This week was costly for those positions. The skew has rebounded from its low point, and capital flows have shifted: the put/call volume ratio reached an annual low and then surged significantly as prices declined; perpetual contract funding rates have been pinned below neutral all month.

Open interest provides a more cautious reading. The open interest put/call ratio seems to have bottomed at the same time but has hardly moved away from that low point. Following the previous position structure, this is merely a repositioning rather than a shift in stance.

Budget shifting to puts

Options buyers are paying for upward movement during the rebound; since prices peaked and declined a week ago, the budget has shifted back to puts, although a single very large put trade dominated this shift's end. The real change is on the call side—upward spending has significantly decreased compared to last year's pace. This does not appear to be panic hedging.

Volatility pricing agrees as well. The entire implied volatility curve has been compressed near the bottom of the range, with six-month terms almost never lower: options traders rarely price out such quiet expectations for the next six months.

The quietest market since 2019

Measured by number of coins rather than dollars (thus price declines do not embellish the data), the spot trading volume has dropped to the lowest level since 2019. Excluding Binance (whose zero-fee promotion inflated tracking volume in 2022-2023), the picture is similar, just still above the deepest low of the previous bear market.

The low trading volume itself is not a directional signal but rather a description of who is still around. When cash is paid to wait, a considerable portion seems to have chosen to wait.

Buying is waiting below

The order book shows that capital is not leaving but rather stepping back. Since early June, buy orders have continuously piled up in the 2% to 20% range below the spot, refreshing day by day. Above the price, the sell side has significantly thinned, with limit sell orders in that same range nearing their thinnest level in the past month.

Buyers appear willing to enter, they just do not want to at the current price level; meanwhile, little supply remains to hinder upward movement. A thin order book is a double-edged sword, often a way for a quiet market to accelerate suddenly.

Final Judgment

The vector remains on standby

The Glassnode Bitcoin vector reading is Risk Off: moderate, not extreme, sitting just above the capitulation zone, which the model refers to as tactical pause. A defensive rather than capitulation signal embodies all the phenomena mentioned above.

The macro environment pays to keep capital waiting, and both on-chain and off-chain appearances have fallen into quiet; none of the models scoring them require anyone to rush in. A rebound is unlikely to change this; what truly changes is the regime itself.

Conclusion

The current regime appears unchanged, rooted upstream in the crypto market. When government bond yields exceed basis trading and the dollar remains strong, marginal buyers are paid to stay in cash, and the downstream surface reads the same signals accordingly: spot trading volume is at a multi-year low, exchange capital flows are almost stagnant, and the sell side has thinned. By depth measurement, this is the shallowest bear market on record; according to the clocks of previous cycles, it has not yet completed. Improvement will begin with policy and manifest as a return to the $69,000 cost basis for short-term holders, alongside ETF channels shifting from lulls to buying. If the $62,000 to $68,000 shelf is lost and exchange inflows awaken, this judgment will be invalidated.