Bitcoin Pulls Back as Traders Rotate to Derivatives and Hedging

After months of steady gains, Bitcoin (BTC) has slowed its momentum, slipping below key cost-basis levels as long-term holders sell into strength and traders shift toward defensive derivatives.

BTC was trading above $111,000 Friday afternoon (Hong Kong time), up roughly 2% over the past week, according to CoinDesk market data. However, the pullback from its recent peak above $126,000 reflects faltering momentum, with capital leaving spot markets and ETFs in favor of derivatives positioning.

Spot Market Fatigue

A recent report from Glassnode highlights repeated breakdowns below key cost quantiles as signs of market exhaustion. CryptoQuant echoes this, noting shrinking realized profits and rising exchange inflows. Both firms point to a rotation of capital within crypto—from spot to derivatives—where volatility itself has become the main traded asset.

Glassnode identifies $113,000 as the short-term holders’ cost basis. Falling below this threshold suggests recent buyers are now in the red, eroding confidence and pressuring weaker hands to capitulate.

Long-Term Holder Selling

Long-term holders have been selling into strength at a pace exceeding 22,000 BTC per day since July, further sapping momentum. Glassnode warns that if BTC fails to reclaim the $113,000 level, losses could deepen toward $108,000–$97,000, where 15%–25% of supply historically becomes unprofitable.

Derivatives Rotation

CryptoQuant notes that ETF inflows have cooled, and exchange reserves are rising, signaling traders are preparing to sell into volatility. This reflects a structural rotation, similar to patterns in 2021 and mid-2022, where capital migrated from spot conviction to derivatives leverage.

Options markets reinforce the cautionary tone. Glassnode reports record-high open interest, with put demand rising across maturities. Market makers’ hedging—selling into rallies and buying dips—has capped price action, leaving the market largely delta-neutral.

Market Outlook

These dynamics suggest Bitcoin is in a rotation phase rather than a collapse, with liquidity circulating within the crypto ecosystem. A meaningful recovery likely depends on renewed spot demand, calmer derivatives activity, and potentially macro catalysts such as Fed rate cuts or renewed ETF inflows.

For now, Bitcoin is catching its breath, trading more as a rotation than a revolution. Volatility remains the market’s favorite asset, but even traders eventually pause to assess the risk landscape.