Market liquidity trap under pressure

Overview

Bitcoin is currently oscillating within the fragile range of $81K–$89K, with the latest quote at $91.99K (as of January 12, 2026). Despite a 24-hour increase of +1.39%, this rebound lacks strong support. The price has broken below key cost basis levels, and on-chain data reveal signs of liquidity exhaustion and eroding investor confidence. Short-term holder (STH) loss rates are at record highs, while leading investors are still unwinding positions, but profit margins are shrinking. The overall market sentiment mirrors the downturn phase of Q1 2022.

Derivatives markets are relatively calm—futures leverage is orderly decreasing, and funding rates hover in neutral territory, preventing liquidity collapse from further declines. However, options markets reveal deeper anxiety: a large concentration of put options near the $84K strike approaching December expiry, while call interest above $100K has significantly waned, indicating market pre-emptively setting a ceiling for rebounds.

Market sentiment shows a roughly balanced “bullish” versus “bearish” outlook (53.27% bullish vs. 46.73% bearish), but this balance is fragile—reflecting trader hesitation rather than genuine buying enthusiasm.

On-Chain Risk Signals: Liquidity Is Vanishing

Drifting below cost basis

Since early October, Bitcoin has been consistently trading below the short-term holder cost basis (~$104.6K). The current price at $91.99K still cannot break through this critical resistance. This persistent weakness signals a market caught in a “no buyers” scenario—large-scale capital inflows in the past two quarters seem exhausted, replaced by forced exits.

The current $81K–$89K range movement closely resembles Q1 2022 price structure, both reflecting a common feature: a black hole in market liquidity.

Malignant cycle of losses

Entity-Adjusted Realized Loss (30-day moving average) has surged to an average of $403.4M per day, surpassing losses during any major bottom formation in the current cycle. In other words, investors are not slowly cutting losses but accelerating their sell-offs.

This is not just technical selling pressure but an intuitive sign of market confidence being gradually eroded—every rebound triggers sell-offs as investors try to escape before bleeding out.

Desperation signals from short-term holders

STH Realized Profit/Loss Ratio has fallen to 0.07x, far below the neutral benchmark of 4.3x. Simply put: investors who entered in the past three months are on average losing 14 times more than they are earning. If this ratio continues to be suppressed, the market structure could evolve into a deep weakness similar to Q1 2022, with a high probability of testing the True Market Mean (~$81K).

Long-term holders’ profit margins are shrinking

The 7-day moving average of LTH Realized Profit/Loss Ratio has fallen from over 400x to around 408x, still above the “healthy alert line” of 100x, but the decline is notable. If this indicator continues downward to 10x or lower, it will trigger a historic signal: even long-term investors start to capitulate, indicating a brewing bear market.

Derivatives Market: Hidden Currents Beneath Calm Surface

Orderly withdrawal of futures leverage

Open interest (OI) is declining in sync with spot prices, but the process is relatively smooth—no significant forced liquidation shocks, and deleveraging appears orderly. This effectively reduces the “explosive potential” in the market, lowering the risk of extreme price swings. It also indicates participants are shifting from speculation to caution.

Funding rates enter neutral territory

Perpetual futures funding rates, previously persistently positive, now frequently hover around zero or even turn negative. This shift is significant—from a high-leverage bullish mindset to a wait-and-see stance, the market has lost its endogenous upward momentum.

Options open interest hits new highs but with discounted value

BTC at-the-money options open interest has hit record highs, reflecting increased market focus on volatility events (especially December expiry). However, since current prices are below the $110K level at the end of October, this “record high” is somewhat inflated—there’s no corresponding substantial increase in actual positions.

This indicates that while the market is actively hedging against recent volatility, the scale remains limited.

Defensive Posture in Options Market

Concentration of puts

Massive put options positions cluster around the $84K level, serving as a psychological support line. Meanwhile, demand for calls above $100K has significantly cooled, showing investor enthusiasm for overbought levels has waned. This layout signals a market preparing for downside, setting a ceiling for rebounds.

Long-term volatility curve concerns

Short-term (weekly) volatility premium has sharply fallen from 18.5% last week to 9.3%, indicating recent panic has eased. But the six-month volatility premium has doubled over the past two weeks, reflecting investor worries about a prolonged bear trend.

This “short-term relief + long-term concern” structure paints a typical picture of a market psychologically bracing for a prolonged downturn.

Opportunities and risks in volatility selling

The market is currently in a positive carry state (implied volatility above realized volatility), creating arbitrage opportunities for volatility sellers. The $403.4M daily realized loss and the rebound at $91.99K suggest this is an optimal window for traders to profit from time decay.

But risks are mounting—FOMC meeting is imminent, and any policy surprise could trigger volatility spikes, turning this “shaving” trade into a catastrophic loss.

Subtle Market Sentiment Shifts

Short-term bottom fear dissipates, but long-term confidence remains absent

The rapid decline in put skew indicates the most urgent downside hedges have been bought and satisfied. Investors are no longer rushing to buy protection, adopting a “if it can’t go down, let’s wait and see” attitude.

But this does not mean optimism—rather, it’s a swamp of hesitation. The retreat of short-term panic is giving way to deeper structural doubts.

Fundamental reason for weak rebounds

Options flow analysis shows that demand for $80K puts has stabilized over the past four days, suggesting short-term rescue efforts are waning. Meanwhile, demand for calls has not rebounded. Traders are using the $91.99K rebound to sell calls, collecting premiums and carry rather than initiating new bullish bets.

This is akin to acknowledging that “the rebound is an opportunity to offload positions,” not the start of a recovery.

Final Assessment: Watching in Fragility

Bitcoin’s current predicament is not a free fall into despair but being stuck in a quagmire of liquidity drought and confidence erosion. The $91.99K rebound offers a short-term breathing space, but on-chain metrics like STH loss ratio (0.07x), realized losses (~$403.4M daily), and shrinking LTH profit margins suggest this is merely a window for market participants to “escape.”

The calm in derivatives markets and defensive options positioning further confirm that the market is preparing for further declines rather than initiating a spontaneous rebound. Unless new capital flows in to restore on-chain liquidity, Bitcoin will struggle to find sustainable upward momentum in its current structure.

While the current market sentiment (53.27% bullish vs. 46.73% bearish) appears balanced, this equilibrium is fundamentally a collective wait-and-see stance—any unexpected event could quickly shatter this fragile balance. In the short term, the $81K–$89K range may continue, but without new catalysts, the next major event is likely to be the volatility release at December options expiry.