One of the most powerful regulatory weeks for cryptocurrencies turned into a severe test of market structure as the price of Bitcoin dipped below $78,000, revealing how macroeconomic pressures and crowded positioning can quickly overwhelm favorable policy catalysts.
This price drop comes shortly after the CLARITY Act advanced toward a vote in the full Senate. The bill is typically a milestone that supports rising digital asset prices by reducing regulatory uncertainty.
Instead, CryptoQuant data reveals that the top cryptocurrency fell by around $4,100 over the weekend. This sudden drop wiped out approximately $80 billion in market capitalization and caused nearly $980 million in liquidations across the crypto derivatives market.
According to market experts, the decline highlights that Bitcoin entered this catalyst with excessive leverage.
Weak demand for ETFs and an increasingly unforgiving macroeconomic backdrop for risky assets further exacerbated the problem. By the time positive policy news arrived, the market was already ready for a reset.
Therefore, if Bitcoin falls below $78,000, the market will find itself in a very complicated situation, where momentum will stall and short-term traders will be forced to reduce their exposure.
Why can’t Bitcoin price be traded using the CLARITY method alone?
Although the CLARITY Act significantly improves Bitcoin’s long-term regulatory outlook, its short-term pricing remains dependent on yields, dollar strength, and global liquidity conditions.
as crypto slate As previously reported, US Treasury yields rose as investors reassessed the Federal Reserve’s policy trajectory. Last week, the 10-year Treasury yield rose to 4.62% and the 30-year Treasury yield approached 5.14%, raising the discount rate for virtually all risk assets.
Naturally, higher yields put pressure on Bitcoin as financial conditions become tighter and speculative assets become less attractive compared to cash and bonds.
Adding to the pressure is the US dollar. Cryptocurrency trading firm QCP noted that the USD/JPY pair is trading around 158-159, dangerously close to the 160 level that has historically prompted intervention from Japanese authorities.
A more rapid passage through this zone could trigger a partial easing of the crowded yen-funded carry trade, a mechanism that rapidly depletes liquidity from global markets.
At the same time, asset manager Bitwise noted that stress in Japanese government bonds (JGBs) is impacting the broader interest rate story.
The 30-year Treasury yield hit a record high, and the 10-year Treasury yield rose to a level not seen since the late 1990s. As global investors rebalance across sovereign debt markets, rising Japanese yields often trickle down to U.S. Treasuries.
Meanwhile, U.S. trade policy has done little to alleviate these headwinds.
Markets had been hoping for more concrete progress after the Trump-Xi summit, but the lack of clear U.S. concessions on rare earths and limited details on tariff cuts for China made investors cautious. Since then, rising oil prices and rising inflation have led to growing expectations that the Fed’s room for easing may diminish.
As a result, interest rate expectations adjusted rapidly. Markets are currently pricing in a 50% to 60% chance that the Fed’s policy rate will rise by 25 basis points by January 2027, marking a sharp reversal from previous base-case rate cut expectations.
This changing landscape makes it extremely difficult for Bitcoin to sustain a purely regulation-driven rally without new liquidity support.
Bitcoin options expiration weakens ETF demand, leaving crowded longs exposed
As the market faced these macroeconomic headwinds, Bitcoin also exhibited structural weaknesses in its own trading regime, which quickly spilled over into the spot market.
According to QCP, Bitcoin has been comfortably hovering around $80,000 for most of the last month. However, this stability was highly dependent on the positioning of expiring options.
Specifically, BTC spot price movement was constrained by dealer positioning, primarily through the at-the-money gamma associated with IBIT options.
This setup naturally absorbed volatility, locking Bitcoin into a narrow range even as other assets moved aggressively. When dealers are arranged in this way, their buying and selling flow mechanically suppresses price fluctuations and creates the illusion of stability.
This mechanical support evaporated after Friday’s expiration as more than $4 billion in IBIT options were rolled off. Without the stabilizing gamma effect, Bitcoin would lose its firm footing around $80,000, leaving highly leveraged traders exposed to an increasingly thin market.
QCP noted that this setup makes Bitcoin highly vulnerable to liquidation cascades if the spot price breaks through major supports.
This is because the market was flocking to bullish positions before the regulatory push triggered sustained spot demand. Once volatility spiked, long traders who had been treating the $78,000 to $80,000 range as an ironclad floor were suddenly forced to rewind.
This wave of liquidations quickly collided with a weakening spot demand environment. Over the weekend, crypto slate reported that Bitcoin ETF outflows exceeded $1 billion last week. This was the largest weekly outflow since January.
These withdrawals come at a critical juncture in the market, as ETF demand has previously been one of the most reliable pillars of support during Bitcoin’s recovery.
Meanwhile, Bitwise also observed that this reversal came after a period of very high crypto sentiment, setting the stage for aggressive profit-taking as the macro environment deteriorated.
Ultimately, these ETF outflows have changed the very nature of stock declines. While the first leg decline was driven by leverage, option expiration, and the loss of mechanical support, ETF withdrawals indicated that longer-term buyers were also reducing their exposure.
This made it much harder to dismiss this decline as a simple derivatives-driven reset, as Bitcoin did not have the spot demand needed to absorb the massive leveraged flush around $78,000.
Despite the decline, Bitcoin supply situation still shows accumulation
Despite the bleak short-term price trend, the fundamentals of Bitcoin’s underlying network paint a strikingly different picture of quiet accumulation and deepening supply contraction.
Binance Research highlighted several on-chain signals indicating tight supply and easing selling pressure.
According to the company, nearly 60% of Bitcoin’s supply has not entered in more than a year, up from 27% in 2012. This dormancy peaked at 69.5% in January 2024 and remains at a historically high level, indicating that long-term holders still control most of the supply.
This indicator suggests that fewer coins flood the market during stressful times.
The decline in BTC exchange balances supports this view. The share of Bitcoin held on exchanges has plummeted to about 15.0% since peaking at 17.6% during the coronavirus-era market shock. Approximately 500,000 BTC left exchanges during this period, pushing readily available sell-side supply to a six-year low.
Furthermore, the SLRV ratio remains at a historic low, favoring long-term holders and suppressing short-term speculation. Historically, this zone corresponds more closely to the accumulation phase of the market than the distribution.
Adding to this positive structural outlook, the MVRV measure for short-term holders, which had been below 1.0 since November 2024, has finally returned to the 1.0 mark. This indicates that short-term holders are starting to rebuild their unrealized gains, effectively eliminating any immediate selling pressure.
Bit-by-bit data supports this movement, showing that the supply of long-term holders has ballooned to approximately 14.8 million BTC, accounting for 74.3% of the circulating supply. Statistically, these coins are controlled by investors who are very unlikely to panic sell.
While these indicators do not eliminate short-term downside risks, they strongly suggest that the weekend selloff washed away excess leverage without fundamentally changing the market’s deeper ownership structure.
Option traders brace for further declines while holding on to rebound trades
Given this complex backdrop, BTC price action and derivatives positioning indicate that crypto traders are bracing for prolonged volatility rather than a definitive directional breakout.
Deribit data shows a clear divergence in market sentiment. On the defensive side, the $60,000 and $75,000 put strikes have emerged as huge positions, with over $2.4 billion in holdings.
This reflects strong demand to hedge against further drawdowns should macroeconomic pressures intensify after a break below $78,000.
At the same time, there is still room for Bitcoin to rebound in the options market if the spot price regains its $78,000 to $80,000 range.
On the contrary, upside potential remains solid. The $80,000 and $90,000 call strikes had over $2.8 billion in open interest, proving that traders have not given up on the rebound theory. They intentionally leave room for a sharp recovery through the recently broken range.
This segmented positioning causes price fluctuations to be volatile. Large put interest rates can create alarm and accelerate selling on a decline, while large call exposures can force traders back aggressively once spot prices stabilize.
In the absence of a decisive catalyst, callover writers could also return to the market to sell the rise in volatility, mechanically pinning Bitcoin near current levels.
This dynamic makes the $78,000 to $80,000 zone the absolute center of gravity. A clean and decisive return above this range would challenge the bearish positions established during the decline and would likely force traders to rebuild their upside exposure.
On the other hand, if Bitcoin is unable to recover, downside hedging will remain attractive and Bitcoin will remain vulnerable to testing lower support levels.
(Tag translation) Bitcoin
