Bitcoin Is At Trend Support

Summary Bitcoin is maintained at `hold` as technicals weaken and post-liquidation risks rise after a significant $19B open interest decline. BTC faces headwinds: slowing on-chain growth, ETF-driven speculation, and capital flows increasingly favoring Ethereum over BTC. Strategy buying has slowed, and historical data suggests large open interest declines precede negative BTC returns this late in a halving cycle. While BTC`s first-mover advantage remains, I am reducing exposure, believing the halving cycle top may be in and further downside risk persists. After what had been a truly terrific 500% rise since the start of 2023, I turned considerably more cautious on Bitcoin ( BTC-USD ) in July and downgraded the coin to a `hold.` I reiterated the asset as a `hold` through coverage of the ProShares Bitcoin Strategy ETF (NYSEARCA: BITO ) in August and again through the Franklin Bitcoin ETF (BATS: EZBC ) in September - each time, taking a slightly different angle in my coverage. Data by YCharts After several months of chop, it appeared as though Bitcoin was ready for smooth sailing following a breakout to a nominal new all time high earlier in October. That breakout is proving to be a fake-out so far. As of article submission, Bitcoin is currently hanging on to support near $107k per coin after knifing through its 200 day moving average early in the October 17th session. Recapping The Summer Downgrade My primary concerns when I downgraded Bitcoin to a `hold` in July could best be summed up into three main points: Lack of on-chain usage growth, "adoption" through ETF speculation Proliferation of DATs reminiscent of the `Blockchain` mania in 2017 Capital flows generally shifting to Ethereum ( ETH-USD ) over Bitcoin As I see it, on-chain data continues to favor Ethereum over Bitcoin on several levels. First, the daily active user trend for Ethereum is positive, while Bitcoin peaked two years ago. 10 yr avg DAA Trend (Artemis) September was the second month where Ethereum bested Bitcoin by average DAAs - and this notably doesn`t include L2 networks or scaling chains, where ETH has a significant advantage over BTC. Transactions favor ETH, and valuation does as well: 30 Day avg NVT ratio (CoinMetrics) Despite Bitcoin retaking the lead in dollar-denominated transferred value from Ethereum in September, at current prices investors are paying more than a 3x premium for Bitcoin`s network when measured by the 30-day average NVT ratio. From a capital flow standpoint, Bitcoin has had a significant resurgence against ETH in recent weeks: Asset (mil) MTD Flows YTD Flows AUM Bitcoin $5,128 $30,212 $188,694 Ethereum $1,071 $13,998 $36,456 Multi-asset -$51.6 -$49 $7,684 Solana $196.1 $2,670 $4,795 XRP -$50.9 $1,889 $2,941 Total* $6,343 $48,715 $242,503 BTC Dominance 80.8% 62.0% 77.8% ETH Dominance 16.9% 28.7% 15.0% Source: CoinShares, Bloomberg, through October 10th, *includes assets not shown in the table So far through the first third of October, Bitcoin dominance in the capital flow game is better than 80%. At one point this summer, ETH dominance in YTD capital flows hit 34%; significant because ETH`s real dominance ratio by market cap has been more range-bound between 12-15%. Still, at 28.7% year-to date flow dominance, Ethereum has been punching well above its weight this year. Again, Bitcoin is admittedly off to a better start in October. But when we look at fresher data from Farside, the reaction following the October 10th liquidation event has been to de-risk BTC to a larger degree: $ in millions BTC ETF Flows ETH ETF Flows 13 Oct 2025 -$326.4 -$428.5 14 Oct 2025 $102.7 $236.2 15 Oct 2025 -$104.1 $169.6 16 Oct 2025 -$530.9 -$56.8 Weekly total -$858.7 -$79.5 Source: Farside Investors Through Thursday October 16th, nearly $860 million has come out of Bitcoin investment products this week. It`s less than $100 million for Ethereum. But the larger point is, as quickly as this liquidity can bid the price up, so too can it take the price down if investors shift to a risk-off sentiment. The other thing to consider is Bitcoin`s whale buyer has all but stopped purchasing through October: Strategy BTC Purchase Timeline (Strategy Data, Analyst`s Chart) Through the first two weeks of October, Strategy`s ( MSTR )( STRF ) Bitcoin acquisitions have totaled just $27 million. Although the company has an ability to raise capital for BTC purchased through its various preferred stock ATMs, more than 89% of the capital raised to buy BTC has come from the common stock ATM since company started selling preferred stocks in March. With basic mNAV compression progressively deteriorating from 2 to 1.18 since November, Strategy`s easy road to BTC buys is running out of ground as every buy with preferred share capital creates a perpetual liability. Open Interest And The Liquidation Event I briefly mentioned the October 10th event in the prior section. During that liquidation, Bitcoin open interest declined from $90.2 billion to $70.5 billion in a single day. And in that major market deleveraging, Bitcoin saw a $20k high-to-low candle on numerous major exchanges, including Kraken, which actually experienced a $22k single-day drawdown. While the coin had indeed bounced off lows and even tested $116k shortly thereafter, a major liquidation of this magnitude can certainly have an impact on BTC price further out. For the benefit of comparison, I`d like to show 1, 2, and 3-month returns for BTC following a few other single-day open interest meltdowns in what I`m calling the institutional post-COVID era: Post-COVID Meltdowns May 19th 2021 September 7th 2021 December 4th 2021 BTC OI Decline $4.9b $4.4b $6.1b BTC Price $37,341 $46,778 $48,204 1m Change -3.3% 15.4% -4.9% 2mo Change -17.5% 44.5% -14.2% 3mo Change 25.21% 10.48% -18.85% Source: CoinGlass To be clear, I`m tracking large declines in open interest, not single-day price declines. What this shows is the potential connection between significant declines in OI relative to how BTC performs shortly after. This table suggests that large declines in OI over a single day lead to mixed returns over the next several months. My assumption is the poor performance following the December 4th, 2021 OI decline is simply due to where Bitcoin was in its halving cycle. BTC Monthly Chart (TrendSpider) Unless we`re of the view that halving cycle theory is no longer relevant, I`d say Q4 2025 is about the time to be lightening up exposures. Given the liquidation even on October 10th, the nearly $20 billion single day decline in Bitcoin open interest, and our current position in the four year halving cycle, I suspect returns over the following few months will be more similar to the December 4th, 2021 returns than the other two examples. Of course, there is a very real possibility that Bitcoin is simply testing long term trend support and will rebound from current levels. I`d be remiss if I did not mention that the 12 month MA has served as trendline support 3 times over the course of the last 15 months, and BTC just tagged that line again through Kraken. But the counter to that point would be that as each cycle progresses, Bitcoin builds more bearish RSI divergences. We can see this from the 2017 through 2025 cycles as well as from February 2024 to today. Closing Takeaways I want to be very clear; I still own Bitcoin. I`m still long BTC because I believe there remains a possibility that it can serve as a useful cross-border settlement asset. I do believe it will have a lot of competition there, with tokenized Gold ( XAUUSD:CUR ) on networks like Ethereum being a very formidable foe for Bitcoin`s `Digital Gold` narrative. Still, Bitcoin has something that no other digital asset has; first-mover advantage. And there`s a lot of sticky value in that. However, none of this means I think Bitcoin is screaming `buy` today. In fact, I`m becoming even more convinced that we`ve seen the top for this halving cycle already. From where I sit, the technicals aren`t great, and the cycle is getting ripe. And purely speculating here, I suspect there is far more damage from the $19 billion liquidation event on October 10th than is currently understood. When Terra Luna collapsed in May 2022, it took 6 more months to figure out who all of the counterparty casualties were. The post-Luna period turned out to not be a good time to be long BTC, looking out the next 12-18 months. I have reduced my exposure to BTC through both the ETFs and the mining stocks.

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