Markets Turn Defensive as Bitcoin Weakens

Executive summary

As 2025 progresses toward year-end, cryptocurrency markets have taken on a noticeably defensive tone. Bitcoin’s price action is showing signs of a weakening market structure, institutional accumulation has cooled, and derivatives markets are signaling greater risk aversion. Short-term holders are realizing losses at an elevated pace, creating a delicate balance between renewed buying interest and the potential for a deeper corrective phase.

Current market snapshot (late 2025)

• Bitcoin (BTC): trading near $92,000 after testing sub-$90,000 levels earlier in the week.
• Ether (ETH): around $3,038, tracking broader market moves and Bitcoin’s defensive tone.
• Gold: trading close to $4,067, reflecting a tilt toward risk-off assets in some sessions.
• Equities: regional markets reacted positively to outsized corporate earnings in the chip sector, supporting risk assets selectively.

What’s changing in demand dynamics

Multiple on-chain indicators and institutional flow metrics suggest the core demand wave that supported earlier gains in 2025 has slowed. Key observations include:

• Exchange-tracked inflows tied to spot Bitcoin vehicles and ETFs have decelerated from highs seen mid-year.
• Corporate treasury purchases and other large-buyer activity that helped push prices higher have thinned.
• Algorithmic and strategic accumulation by some large entities has fallen to more muted levels compared with earlier in the cycle.

These shifts do not imply an immediate collapse. Rather, they indicate upside may be constrained until a new demand wave — be it fresh institutional re-entry, substantial retail accumulation, or macro tailwinds — reappears.

Why the 365-day moving average matters

Many market participants use the 365-day moving average (365-D MA) as a gauge for medium-term trend health. When prices frequently stall below this line, it signals reduced conviction among buyers and increases the likelihood of extended consolidation or corrective phases. Given the current slowdown in accumulation, rallies are at greater risk of failing to clear that benchmark without renewed demand.

Derivatives, options, and risk-off positioning

Derivatives markets have moved into a more cautious stance. Key developments include:

• Options desks are showing elevated put buying, indicating a preference for downside protection.
• Implied volatility has climbed alongside these protective trades, raising the premium for hedging directional exposure.
• Futures funding rates and open interest patterns point to a temporary shift from aggressive long levered positions toward de-risking.

When derivatives traders tilt to protection, it often precedes more muted price action or sharper pullbacks, because the cost of reversing or building new longs rises and sellers gain bargaining power.

Short-term holders and realized losses

Short-term holders — addresses that accumulated in recent months — are currently realizing losses at an increased rate. This phenomenon can exacerbate volatility for two reasons:

• Forced selling from shorter-duration holders can add supply to the market during corrective moves.
• Loss realization lowers marginal buyer conviction if recent entrants are shaken out, delaying a clear bottom formation.

If short-term seller capitulation accelerates, markets may quickly test deeper support levels as liquidity seekers absorb the added supply.

Critical price levels and scenario planning

Several intermediate levels are important for assessing near-term directional risk:

• Active investor cost basis (~$88,600): a benchmark where a sustained move below would place most active-cycle buyers into losses for the first time in this cycle. Breaching this area could increase selling pressure.
• True Market Mean (~$82,000): a deeper structural support. Holding above this level suggests only a mild bearish phase; falling below could signal a return to a bear market structure similar to prior cycles.
• Near-term resistance: the 365-day moving average and local swing highs. Without a fresh demand catalyst, rallies may fail near these zones.

Market participants should prepare for two plausible scenarios:

Bullish reassertion

• Renewed institutional inflows or positive macro developments re-ignite demand.
• Short-term sellers are absorbed, funding rates normalize, and implied volatility falls.
• Prices re-approach and sustain above the 365-D MA, setting up higher time-frame consolidation or continuation.

Extended defensive phase

• Demand remains muted, derivatives traders keep protective positions, and realized losses trigger more selling.
• Active investor cost basis is breached, leading to reduced risk appetite and price discovery toward the True Market Mean.
• Volatility persists as the market searches for a new equilibrium and participants re-price risk.

Context: why 2025 is different

Several structural changes in 2025 shape how market corrections may unfold compared with earlier cycles:

• Wider institutional participation and the maturing of spot-based products have increased the sensitivity of price action to large inflows and outflows.
• Regulatory clarity in several jurisdictions has encouraged longer-term allocation, but also created windows where on-ramps slow as rules evolve.
• The expansion of crypto-native derivatives and structured products means risk transfer can occur more quickly, amplifying moves when sentiment shifts.
• Macro conditions — including central bank policy trajectories and global growth outlook — continue to influence allocations to risk assets, including cryptocurrencies.

These factors make 2025 a year where the market can rally quickly on renewed confidence, but also correct more sharply when flows reverse.

Practical risk management for traders and investors

In a defensive market, disciplined risk management becomes paramount. Consider the following:

• Re-evaluate position sizing relative to recent volatility; reduce leverage where implied volatility and funding rates are elevated.
• Use staggered entries to avoid timing risk — dollar-cost averaging can smooth exposure during choppy markets.
• Employ appropriate hedges (e.g., options puts, inverse products) if downside protection aligns with your strategy and cost tolerance.
• Monitor on-chain and flow metrics to detect early signs of renewed demand or accelerated outflows.
• Set clear stop-loss or rebalancing rules to avoid reactive decisions during sharp intraday moves.

Opportunities amid the caution

Even in defensive phases, opportunities emerge for strategic allocators:

• Volatility trading: Elevated implied volatility can make options strategies more attractive for income or directional views.
• Accumulation during dips: Long-term investors who view crypto as a strategic allocation can use weakness to increase exposure at lower prices.
• Relative-value plays: Differences in behavior between spot, futures, and options markets can create transient arbitrage or hedging opportunities.

How to monitor market health going forward

Track a combination of on-chain, flow, and derivatives indicators to gauge shifting market dynamics:

• ETF and institutional flow data for signs of renewed buying.
• Exchange balances and withdrawal patterns to monitor retail and institutional supply/demand.
• Derivatives positioning, funding rates, and open interest as measures of leverage and sentiment.
• Short-term holder realized losses and concentration metrics to identify capitulation risks.

Conclusion

Late 2025 has introduced a more defensive market posture for cryptocurrencies. The core demand wave that supported earlier gains has cooled, leaving rallies vulnerable beneath medium-term technical benchmarks. Derivatives traders are taking a risk-off stance, and short-term holders are realizing losses at a faster clip — both of which increase the potential for further downside in the absence of renewed buying.

That said, the market still offers distinct pathways back to strength if institutional flows resume or macro conditions tilt more favorably. For traders and investors, disciplined risk management, careful monitoring of flow indicators, and tactical use of hedges are essential in navigating this transitional period.

Stay informed

MEXC will continue to monitor these developments and provide timely market insights, educational resources, and tools to help users manage exposure during changing market conditions.

Disclaimer: This post is a compilation of publicly available information.
MEXC does not verify or guarantee the accuracy of third-party content.
Readers should conduct their own research before making any investment or participation decisions.