Bull to Bear confirmed! 430,000 BTC on-chain chips redistributed, cyclical laws dominate the market again.

Original Title: Repricing + Big Turnover, The Logic and Thoughts Behind BTC's Big Dump in November

Original author: 0xWeilan

Original source:

Reprinted: Daisy, Mars Finance

“Currently, as the prospects for interest rate cuts face new twists and turns, risk appetite has not fully improved, and cyclical selling (cyclic law) has become the main force driving BTC's trend. Without further economic and employment data support, a shift in risk appetite could drive capital back, and if long-term selling continues, once BTC effectively breaks below the bull-bear boundary, a “long liquidation” could occur, significantly increasing the probability of the end of the BTC cycle.”

——In the end, BTC experienced the “long squeeze” sell-off that we indicated in our October report, with a monthly decline of 17.51%, marking the second largest monthly drop in this cycle. By the end of the month, the maximum drawdown from the peak reached 36.45%, the largest in this cycle.

Technically, BTC once fell below the “Trump bottom” constructed in the range of 90,000~110,000 USD, and has been running below the 360-day moving average for three consecutive weeks. In terms of space and time, a daily level “bull to bear” confirmation has been completed, and a weekly level confirmation is in progress, while the monthly level confirmation still needs to be observed.

The short-term liquidity tightness caused by the U.S. government shutdown, along with the chaotic economic and employment data leading to a “roller coaster” of interest rate cut expectations from the Federal Reserve (mid-term liquidity tightness expectations), has triggered a massive sell-off/hedging of high-β assets globally, as well as internal cyclical movements in the cryptocurrency market. This is the fundamental reason for the extreme conditions in BTC and the entire cryptocurrency market. The unpredictability of macro liquidity makes it increasingly difficult to assess the “transition from the old cycle to the new cycle” in the cryptocurrency market.

In this report, we will conduct a structured analysis of the November market based on the EMC Labs “BTC Cycle Multi-Factor Judgment Model” in order to seek the logic and path of the fall, and to assess the medium to long-term trend of whether it is a “mid-term adjustment” or a “transition to a bear market.”

BTC price daily line

Liquidity Crisis: Exhaustion and Unpredictability

As of November 12, the U.S. government shutdown has lasted for 43 days, setting a historical record. During the shutdown, fiscal spending has been significantly reduced, but revenues from taxes, tariffs, and other sources continue to flow in, resulting in a cash flow accumulation of “only in, no out,” which directly raises the balance of the Treasury's TGA account at the Federal Reserve, creating a fierce “water absorption” effect on the market.

The TGA balance increased by over $200 billion in a single month, with the total balance nearing $1 trillion, withdrawing bank reserves from the private sector and creating a “liquidity vacuum.” Bank reserves fell from about $3.3 trillion to about $2.8 trillion, approaching the market's perception of the “ample reserves” lower bound. Ultimately, the ON RRP Rate, SOFR continued to be higher than IORB, making it difficult for trading institutions to obtain sufficient funds from banks, even forcing them to repay.

US Treasury TAG account balance

The Federal Reserve announced its second interest rate cut of the year at the FOMC meeting on October 29. Many people believe that mid-term liquidity is being released, but they overlook the microstructural constraints — the liquidity that the Federal Reserve is actually releasing to the market has been continuously declining since late July.

Net liquidity injection by the Federal Reserve

Tight liquidity has pushed up the cost of capital in the trading market, putting pressure on the valuations of U.S. AI concept stocks and high β assets like BTC.

EMC Labs has noted that as actual liquidity gradually dries up, market risk appetite deteriorates, and valuation pressure ultimately leads to the sequential selling of high-β assets, with BTC being the first link in this selling chain.

In early October, the influx of funds into BTC ETFs was abundant, driving BTC to a historic high. Soon after, with the Federal Reserve injecting market liquidity, it fell to a low point, and began to flow out, subsequently dominated by a significant outflow.

Statistics of fund inflows and outflows for 11 ETFs in the United States (daily)

As a high-beta asset like the NASDAQ AI concept stocks, BTC, which lacks fundamental support compared to crypto assets, began to fall after the rebalancing was initiated. However, it continued to reach new historical highs driven by the better-than-expected earnings reports of the seven giants, until it started to break down on November 4.

After the breakdown of the US stock market, funds continued to accelerate outflow from the cryptocurrency market. On one hand, there is the ongoing withdrawal of funds from the BTC ETF channel, and on the other hand, further selling by large holders within the market has led to BTC breaking down further ahead of the NASDAQ's decline, reaching the low point of this round of adjustment on November 21.

Nasdaq vs BTC price trend

During this period, BTC adjusted earlier than the Nasdaq by nearly a month, with a magnitude nearly 4 times that of the Nasdaq (BTC: -36.45%, Nasdaq: -8.87%), showing an elasticity 2 to 3 times greater than before.

Aside from short-term liquidity pressure, we continue to monitor an important indicator of medium-term liquidity expectations—the probability of a rate cut by the Federal Reserve in December. In October, the expectation for a December rate cut reached as high as 98.78% (on October 20), but then, under the continuous “hawkish” remarks from Federal Reserve officials, it fell to a low of 30.07% (on November 19). The change in risk appetite for funds driven by the weakening of medium-term liquidity expectations has undoubtedly intensified traders' selling of high β duration assets.

On November 12, the U.S. government ended the shutdown, and short-term liquidity began to be slowly released. However, the Federal Reserve's continued “hawkish” stance keeps the probability of a rate cut in December declining after the shutdown. We assess that the initial situation was a genuine short-term liquidity exhaustion, followed by a pessimistic expectation for medium-term liquidity, both of which dominated the recent fall and price rebalancing in the U.S. stock and crypto markets.

The real turning point for the fall of BTC and the U.S. stock market occurred on November 21. It was a Friday, and the Federal Reserve's “third-in-command,” New York Fed President John Williams, expressed in a public forum that the downward risks to employment have increased, and there is room for further adjustments to the federal funds rate to bring the policy stance closer to a neutral range. This statement was seen as the opinion of the Federal Reserve's “management,” and on that day, the probability of a rate cut in December quickly traded above 70%, leading to a rebound in both the U.S. stock market and BTC.

FedWatch probability of a 25 basis point rate cut by the Federal Reserve in December

After that, on November 26, the Federal Reserve's Beige Book was released, indicating that the economic and employment situation was indeed deteriorating. This information further dispelled market concerns that the Federal Reserve might choose a conservative stance and not lower rates due to a lack of sufficient economic and employment data before the December interest rate meeting. The probability of a rate cut in December according to FedWatch gradually rose above 80%, reversing from Powell's statement on October 30 that it was 'by no means a done deal' to 'a done deal' one month later.

The adjustment in the US stock market in November also includes concerns about the overvaluation of AI concept stocks, which has led to a 20% adjustment in the leading stock Nvidia, with weak rebounds. Overall, however, it is more about the dual adjustment of risk appetite and valuation caused by short-term liquidity pressure and uncertain mid-term liquidity. Therefore, as the turning point of short-term liquidity appears and the probability of interest rate cuts in December returns to a high level, the Nasdaq recorded increases in all four trading days in the last week of November, attempting to recover the historical high point set on October 29.

Although the US stock market has rebounded strongly, the short-term market risks seem to have been eliminated. However, liquidity risk has not been completely resolved, and short-term liquidity has not yet shown significant improvement. In terms of medium-term liquidity, although a rate cut in December is almost a certainty, whether market rate cuts can continue in the first quarter of next year will still depend on the upcoming economic and employment data.

Internal Structure: Repricing and Big Turnover

The turning point of the liquidity crisis has appeared, and the Nasdaq may soon recover its previous historical high, but the elastic performance of BTC is far from keeping pace, still over 38% away from the historical high on October 6. We believe that the weak price performance is due to the fact that the elasticity of BTC is inherently greater than that of the Nasdaq, combined with severe internal structural damage and “cycle rate” sell-offs.

First, through the eMerge Engine's comprehensive statistics on capital inflows and outflows in the cryptocurrency market, we can see that in November, the crypto market recorded over $3.6 billion in outflows, with the BTC ETF channel accounting for $3.382 billion, the ETH ETF channel for $1.352 billion, stablecoins for $615 million, and the SOL ETF recording a positive inflow of $412 million. The overall BTC/ETH/SOL treasury companies recorded a positive inflow of approximately $1.298 billion.

Cryptocurrency market all-channel capital inflow and outflow statistics (monthly)

In November, the cryptocurrency market recorded the largest single-month outflow since the beginning of this cycle, and this occurred after three consecutive months of reduced inflows. This is the fundamental reason for BTC experiencing the largest decline in this cycle this month. Among these, the outflow from the BTC ETF channel accounted for 93.94% of the total outflow, so we attribute this round of adjustment mainly to the repricing downward of high-β assets like BTC due to the liquidity crisis.

Secondly, the periodic reduction of long-term holders driven by cyclical laws is also an important reason. During this cycle, the long-term holders of BTC have conducted a total of three rounds of large-scale sell-offs: the first wave from January to March 2024, the second wave from October 2024 to January 2025, and the third wave, which corresponds to the deep correction of BTC prices from July to November 2027.

BTC long position holdings and position change statistics (daily)

Unlike the previous two rounds of large-scale reductions during the rise in BTC prices, this round of reductions mainly occurred from July to November when prices stabilized or even fell rapidly. This behavior of long-term holders is not unusual and remains consistent with their actions after the “bull to bear” transition. Considering the significant influence of the “halving bull market” mentality formed over more than a decade, as well as the “coincidence” of reaching past cycle bull market highs around October, we believe there is indeed a sufficiently large group of long-term holders who continue to adhere to the “cycle law” and initiate sell-offs after the “bull to bear” transition. This sell-off is a major reason for the amplification of BTC's decline.

Finally, the recent fall of BTC is not only constrained by the above two factors, but also by other negative factors such as the futures arbitrage traders and the cryptocurrency market makers suffering heavy losses due to the “Binance USDe de-pegging incident.”

A brutal fall has occurred, with some people selling off in large quantities while others take the opportunity to increase their positions. Ultimately, a massive turnover of BTC has happened. After the turning point of macro liquidity expectations, the market has finally welcomed a moment of respite.

Through the analysis of on-chain BTC data, we found that around $84,000, over 430,000 BTC were re-tagged in price, rewriting a significant chapter in the history of BTC redistribution.

BTC On-Chain Cost Distribution Heatmap

Long hands of BTC continue to accumulate chips by buying during the fall, while gradually selling to new short hands during market rises. This fundamental movement, along with BTC halving, has formed the past BTC cycle of bull and bear transitions. Today, as the consensus of BTC spreads on Wall Street, the holding structure of BTC is undergoing fundamental changes, with BTC ETF holders and treasury companies becoming new long-term investors. We have discussed multiple times in our monthly reports whether the old cycle will change due to the new market structure and whether the new cycle will shape new forms.

Today, we still have no answers. But if this BTC long position sell-off ultimately extinguishes market enthusiasm and the market trend reverses back into a bear market, then we can say that the new cycle has not yet been successfully shaped.

Conclusion

In November, the short-term macro liquidity dried up and the medium-term macro liquidity expectations turned pessimistic, driving the devaluation and downward repricing of assets including Nasdaq AI concept stocks and crypto assets. Subsequently, as expectations changed, both markets began to rebound.

The internal movements and structural vulnerabilities of the cryptocurrency market have intensified the severity of this adjustment.

In this round of adjustment, both the scale of capital outflow and the BTC retracement are the largest in a single month since this cycle.

Based on this logic, we judge that the short-term price turning point has already appeared on November 21. Subsequently, with the interest rate cuts in December and the end of the Federal Reserve's quantitative tightening (QT), U.S. macro liquidity will improve, and funds may flow back to the cryptocurrency market, further driving price rebounds. If it can continue with the 2026 U.S. stock bull market, reaching new highs, BTC will break away from the old cycle and enter a new cycle dominated by Wall Street institutions. If funds cannot flow back, it can be determined that the formation of the new cycle has failed, the old cycle still dominates the market, and the BTC bull market since November 2022 will turn into a bear market, once again seeking a bottom.