Original Article Title: From Rally to Correction

Original Article Authors: Chris Beamish, Antoine Colpaert, CryptoVizArt, Glassnode

Original Article Translation: AididiaoJP, Foresight News

Bitcoin has shown signs of weakness after the rally triggered by the Federal Open Market Committee. Long-term holders have realized a profit of 3.4 million BTC, while ETF inflows have slowed down. With pressure in both the spot and futures markets, the short-term holder cost basis of $111,000 is a key support level. A breach of this level may lead to deeper cooling risks.

Summary

• After the FOMC-driven rally, Bitcoin has entered a correction phase, showing market signs of "buy the rumor, sell the fact," with a broader market structure pointing to weakening momentum.

• The current 8% decline is still relatively moderate, but the realized market value inflow of $678 billion and the 3.4 million BTC profit realized by long-term holders highlight the unprecedented scale of this round of capital rotation and sell-off.

• ETF inflows sharply slowed around the FOMC meeting, while long-term holder selling accelerated, leading to a fragile balance of funds flow.

• Spot trading volume surged during the sell-off, and the futures market experienced intense deleveraging swings. The liquidation cluster revealed the market's vulnerability to two-way liquidity-driven volatility.

• The options market has seen a radical repricing, with skew soaring and strong demand for put options, indicating a defensive positioning, as the macro backdrop suggests an increasingly exhausted market.

From Rally to Correction

After the FOMC-driven rally and the price nearing $117,000 peak, Bitcoin has transitioned into a correction phase, echoing the typical "buy the rumor, sell the fact" pattern. In this issue, we step out of short-term volatility to assess the broader market structure, using long-term on-chain indicators, ETF demand, and derivative positions to evaluate whether this retracement is a healthy consolidation or an early-stage contraction.

On-chain Analysis

Volatility Context

The current decline from the $124,000 all-time high (ATH) to $113,700 is only an 8% drop (the latest drop has reached 12%), which appears mild compared to the 28% decline in this cycle or the 60% decline in previous cycles. This is consistent with the long-term trend of decreasing volatility, whether between macro cycles or within stages of the cycle, resembling the steady progress from 2015-2017, except the explosive rally phase of its end has not yet emerged.

Cycle Duration

Overlaying the past four cycles reveals that even though the current trajectory closely aligns with the first two cycles, the peak returns have diminished over time. Assuming $124,000 marks the global top, this cycle has lasted approximately 1030 days, very close to the length of around 1060 days seen in the previous two cycles.

Capital Inflow Measurement

Aside from price action, capital deployment provides a more reliable perspective.

Realized market cap has seen three waves of increase since November 2022. Pushing the total up to $1.06 trillion reflects the scale of inflowing capital supporting this cycle.

Realized Market Cap Growth

Historical Context:

· 2011–2015: $4.2 billion

· 2015–2018: $85 billion

· 2018–2022: $383 billion

· 2022–Present: $678 billion

This cycle has absorbed a net inflow of $678 billion, nearly 1.8 times that of the previous cycle, underscoring the unprecedented scale of its capital rotation.

Peak Profit Realization

Another distinction lies in the inflow structure. Unlike the singular wave seen in earlier cycles, this cycle has experienced three distinct, sustained surges lasting several months. The realized profit ratio indicates that each peak profit realization surpassing 90% of the token's move marked a cyclical peak. Just emerging from the third instance of such an extreme scenario, the likelihood leans towards a cooling-off phase next.

Long-Term Holder Profit Dominance

When focusing on long-term holders, the scale becomes clearer. This metric tracks the cumulative profit of long-term holders from the new all-time high (ATH) to the peak of the cycle. Historically, their significant selling has signaled the top. In this cycle, long-term holders have realized a profit of 3.4 million BTC, surpassing previous cycles, highlighting the maturity of this group and the scale of capital rotation.

On-chain Analysis

ETF Demand vs. HODLers

This cycle has also been characterized by a tug-of-war between HODLers selling pressure and institutional demand through US spot ETFs and DATs. With ETFs emerging as a new structural force, the price now reflects this push-pull dynamic: HODLers profit-taking has limited the upside, while ETF inflows have absorbed the selling and maintained the cycle's progression.

Fragile Balance

ETF inflows have so far balanced out HODLers' sell-offs, but the margin of error is slim. Around the time of the FOMC meeting, HODLers' selling surged to 122,000 BTC per month, while ETF net inflows plummeted from 2,600 BTC per day to near zero. The combination of increasing selling pressure and waning institutional demand created a fragile backdrop, setting the stage for weakness.

Spot Market Pressure

This fragility is evident in the spot market. During the post-FOMC meeting sell-off, trading volume spiked as forced liquidations and thin liquidity exacerbated the downward trend. Despite the pain, a temporary bottom was formed near the short-term HODLers' cost basis around $111,800.

Futures Deleveraging

Simultaneously, as Bitcoin broke below $113,000, open interest in futures contracts sharply declined from $44.8 billion to $42.7 billion. This deleveraging event liquidated leveraged longs, amplifying the downward pressure. While causing instability in the short term, this reset helped clear excess leverage and restore balance in the derivatives market.

Liquidation Clusters

The perpetual contracts liquidation heat map provides more insights. When the price dropped below the $114,000 to $112,000 range, dense clusters of leveraged longs were liquidated, leading to a significant number of liquidations and accelerating the downturn. Risk pockets still exist above $117,000, making both sides of the market susceptible to liquidity-driven volatility. In the absence of stronger demand, the vulnerability near these levels increases the risk of further intense fluctuations.

Options Market

Volatility

Turning to the options market, the implied volatility provided traders with a clear view of how to navigate a turbulent week. Two main catalysts shaped the market landscape: the first rate cut of the year and the largest liquidation event since 2021. With hedge demand building up, volatility surged ahead of the FOMC meeting but quickly subsided post-rate cut confirmation, indicating that this move had largely been priced in. However, the dramatic liquidation of Sunday night futures reignited demand for protection, leading a volatility rally, which then extended strongly across various tenors.

Market Repricing the Rate Cut

Post-FOMC meeting, there was a pronounced demand for put options as either protection against a sharp downturn or a way to profit from volatility. Just two days later, the market validated this signal with the largest liquidation event since 2021.

Put/Call Options Flow

Following the selloff, the put/call options volume ratio saw a decline as traders locked in profits on in-the-money put options, while others rotated to cheaper call options. Short-term and medium-term options still heavily favored put options, making downside protection relatively more costly compared to upside exposure. This imbalance created an opportunity for participants with a constructive year-end view—either accumulating call options at a relatively lower cost or funding their thesis by selling expensive downside risk exposure.

Options Open Interest

Total options open interest remains near historical highs and is set to sharply decline at Friday morning expiration, then rebuild heading into December. The market is currently at an apex where even minor price movements force market makers into aggressive hedging. Market makers are short on the downside and long on the upside, a structure that amplifies selling pressure while limiting rebounds. This dynamic skews near-term volatility risk to the downside, exacerbating fragility until expiration unwind and position reset.

Conclusion

Bitcoin's decline after the FOMC meeting reflects a typical "buy the rumor, sell the news" pattern, but the broader backdrop points to a growing sense of exhaustion. The current 12% drop is relatively mild compared to past cycles, but it comes after three major waves of capital inflows that have boosted realized market capitalization by $678 billion, almost twice the previous cycle. Long-term holders have realized a profit of 3.4 million BTC, highlighting significant selling pressure and maturity in this rally.

Meanwhile, the previously absorbed supply through ETF inflows has slowed, creating a fragile equilibrium. Spot trading volume surged due to forced selling, futures saw a sharp deleveraging, and the options market priced in the downside risk. These signals collectively suggest that market momentum is waning, with liquidity-driven volatility taking the lead.

Unless institutional and holder demand align once again, the risk of a deep chill remains high.

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