Summary:

• As global trade relations continue to restructure, the macroeconomic environment remains full of uncertainty. This uncertainty has intensified the volatility in the U.S. Treasury market and the stock market.
• In the face of a severe economic situation, Bitcoin has recorded its largest drop in this cycle. Nevertheless, this still falls within the typical range of pullbacks during previous bull markets. Additionally, the median drop in this cycle remains an order of magnitude lower than in the past, highlighting its more resilient demand conditions.
• The liquidity of the entire digital asset ecosystem continues to tighten, manifested by a decline in capital inflows and stagnation in the growth of stablecoins.
• Investors are under immense pressure, currently facing the largest unrealized losses in history. However, these losses are primarily concentrated among new market entrants, while long-term holders generally remain profitable.

Macroeconomic uncertainty remains prevalent

The macroeconomic landscape is permeated with immense uncertainty, as the Trump administration attempts to upend and restructure the status quo of global trade relations. Currently, U.S. Treasury bonds serve as collateral and the foundation of the financial system, while the 10-year U.S. Treasury bond is regarded as the benchmark risk-free interest rate.

A key objective of the government is to lower the yield on the 10-year U.S. Treasury bonds, and initial success was achieved in the first few months of this year, with the yield dropping to 3.7% amid widespread market sell-offs. However, this goal proved to be fleeting, as the yield subsequently surged to 4.5%, erasing that progress and causing significant volatility in the bond market.

Source: FRED

We can quantify the disorderly behavior of the bond market through the MOVE index. This indicator is a key measure of the pressure and volatility in the bond market, derived from the implied 30-day volatility based on the prices of options with different maturities in the U.S. Treasury market.

Measuring by this standard, the volatility of U.S. Treasury bonds has significantly increased, highlighting the extreme uncertainty and panic levels among bond market investors.

Source: Tradingview

We can also use the volatility index (VIX) to measure the turbulence of the U.S. stock market, which gauges the market's expectation of 30-day volatility for the U.S. stock market. The volatility of the bond market is also significantly reflected in the stock market, and the current recorded volatility value of VIX is similar to the volatility values during the COVID-19 crisis in 2020, the global financial crisis in 2008, and the internet bubble period in 2001.

The volatility of the underlying collateral in the financial system often leads to capital withdrawals by investors and tightening liquidity conditions. Given that Bitcoin and digital assets are among the most liquidity-sensitive instruments, they are naturally affected by volatility and the withdrawal of risky assets.

Source: FRED

In this turmoil, the performance of hard assets remains impressive. As investors flock to traditional safe-haven assets, the price of gold continues to surge, reaching a new high of $3300. Bitcoin was initially sold off to $75,000 along with risk assets, but has since recovered the gains of this week, rising to $85,000, and has remained flat since the outbreak of this volatility.

As the world adapts to the changing trade relationships, gold and Bitcoin are increasingly taking center stage as globally neutral reserve assets. Therefore, it can be said that gold and Bitcoin showed a noteworthy signal in their performance last week.

Bitcoin Remains Strong

Although Bitcoin is still trading in the $85,000 range, which is impressive, the volatility and drawdown of this leading digital asset have intensified in recent months. The asset has recorded the largest drop since the 2023-25 cycle, with a maximum drawdown of 33% from its historical peak.

However, the extent of the decline is still within the typical range of corrections seen during previous bull markets. In past macroeconomic events like last week, Bitcoin has usually experienced sell-offs of over 50%, highlighting that modern investors maintain a certain level of resilience towards this asset even in adverse conditions.

To quantify the elasticity of the current cycle, we can assess the rolling median drawdown situation of all bullish structures.

• 2011: -22%
• 2011-2013：-18%
• 2015-2018：-11%
• 2018-2021：-19%
• 2022 and beyond: -7%

The median drawdown during the current period is much smaller than in all previous cases. Since 2023, the drawdown has been relatively minor and essentially more controllable, indicating that the demand situation is more resilient, and many Bitcoin investors are more willing to continue holding during market turbulence.

Liquidity Continues to Shrink

We can also assess how macroeconomic uncertainty affects the liquidity conditions of Bitcoin.

We can measure the internal liquidity of Bitcoin through the realized market capitalization metric, which calculates the cumulative net inflow of capital into the digital asset. The realized market capitalization is currently trading at a historical high of $872 billion; however, the capital growth rate has been compressed to just +0.9% per month.

In a challenging market environment, it is impressive that the capital flowing into this asset continues to show positive growth. Given that the pace of new capital inflows into this asset is slowing down, this also indicates that investors currently have a lower willingness to allocate capital in the short term, which means that risk aversion may still be the default behavior at present.

The realized profit and loss metrics are components of the realized market value input, allowing us to gauge the difference between the acquisition price of the token and its value when used on-chain.

• Tokens that are above the acquisition price are considered to have locked in realized profits.
• Tokens below the acquisition price are considered to have realized locked losses.

By measuring realized profits and losses in BTC, we can standardize all profit and loss events against the continuously expanding market value during Bitcoin cycles. Here, we introduce a new variable and further refine it by adjusting for volatility (7-day realized volatility), which helps explain the diminishing returns and decreasing growth rates that have emerged as Bitcoin has matured over its 16-year history.

Currently, profit and loss activities are relatively balanced, which has led to the relatively neutral capital inflow rate mentioned earlier. It can be said that this reflects the saturation of investor activity within the current price range and typically precedes a consolidation period as the market attempts to find a new equilibrium.

By calculating the difference between realized profits and realized losses, we can derive the net realized profit/loss metric. This metric measures the directional dominance of value flowing into/out of the network.

Using the net realized profit/loss metric adjusted for volatility, we can compare it with the cumulative median to differentiate between the two market mechanisms.

• A value consistently above the median usually indicates a bull market and net capital inflow.
• A value that continues to remain below the cumulative median is usually seen as a bear market, where Bitcoin will experience net capital outflow.

Markets usually push investors to the brink of extreme pain, often peaking at turning points in bull and bear cycles. We can see that the volatility-adjusted net realized profit and loss fluctuates around its long-term median, serving as a mean reversion tool.

The indicator has now been reset to a neutral median, indicating that the Bitcoin market is currently at a critical decision point and has delineated the boundaries for bulls to re-establish support within the current price range.

Stablecoins have become a fundamental asset class in the digital asset ecosystem, serving as a quoted asset on both centralized and decentralized trading platforms. Evaluating liquidity from the perspective of stablecoins provides a new dimension to our analysis, allowing us to gain a more comprehensive understanding of the liquidity conditions of digital assets.

The growth of stablecoin supply continues to show positive growth, but it has slowed down in recent weeks. This further indicates that the broader liquidity of digital assets is shrinking, as evidenced by the weakening demand for digital-native US dollars.

Investor Pressure

In the ongoing market turmoil, it is very important to assess the scale of unrealized losses currently held by Bitcoin investors.

When measuring the unrealized losses held by the market, we noted that during the market's decline to $75,000, unrealized losses reached a new high of $410 billion. When we examined the composition of unrealized losses, we could see that most investors held a drawdown of up to -23.6%.

Compared to the sell-off in May 2021 and the bear market in 2022, the total unrealized losses were greater. However, it is worth noting that for individual investors, the market experienced more severe declines, reaching -61.8% and -78.6% respectively.

Although the overall unrealized losses are significant (given that Bitcoin is now a larger asset), individual investors face smaller challenges today compared to previous bear market periods.

Despite the unrealized losses hitting a record high, the proportion of profitable positions in circulation supply remains as high as 75%. This indicates that most of the loss-making investors are new buyers after the top formation appeared.

It is worth noting that the percentage of profitable supply is approaching its long-term average. Historically, this is a key area that needs to be guarded before the vast majority of cryptocurrencies fall into loss, and it is also a critical threshold between bull and bear market structures.

• A typical characteristic of a bull market is that profit supply is above its long-term average, and this level of support is usually found throughout the market.
• Historically, bear markets are usually accompanied by depths and durations below the long-term average, and the frequent declines at this level confirm the decline in profitability.

Similar to the net realized profit/loss indicator, if it can be maintained, a rebound in the long-term average range will be a positive observation result.

As the market continues to shrink, it is reasonable to expect that the absolute scale of unrealized losses will increase. To explain this phenomenon and standardize different magnitudes of drawdowns, we introduce a new indicator variable: unrealized losses per percentage drawdown, which represents the percentage decline in losses calculated in Bitcoin relative to the historical peak.

Applying this indicator to the short-term holder group indicates that, after depth adjustments have been made, their unrealized losses have become quite substantial, comparable to the levels at the start of the previous bear market.

Nevertheless, current unrealized losses are primarily concentrated among new investors, while long-term holders remain in a state of one-sided profit. However, an important nuance is emerging: as recent top buyers gradually become long-term holders, the level of unrealized losses for this group may increase.

Historically, a significant increase in unrealized losses for long-term holders often marks the confirmation of a bear market, although there may be a delay after the market peaks. As of now, there is no clear evidence indicating that this pattern shift is occurring.

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Summary and Conclusion

The macroeconomic landscape remains full of uncertainty, and the global trade pattern continues to change, leading to significant fluctuations in the U.S. Treasury and stock markets. Notably, the performance of Bitcoin and gold has been particularly strong, especially during this challenging period. As the foundational elements of the financial system enter a period of transformation and reform, this may be an encouraging signal.

Despite Bitcoin's remarkable resilience, it has not been immune to the drastic fluctuations of the global market, recording the largest drop since the 2023-2025 cycle. This has significantly impacted new market participants, who currently bear the brunt of the market losses. However, from the perspective of individual investors, the market has experienced more severe declines in previous cycles, particularly during the bear markets of May 2021 and 2022. Furthermore, mature and long-term investors remain unfazed by the ongoing economic pressures, almost in a state of one-sided profit.