Bitcoin's struggle to reclaim the significant $90,000 mark is no longer merely a debate about prevailing market narratives. Instead, it appears to be a crucial test of the underlying market mechanics, revealing structural vulnerabilities that could leave investors exposed during future periods of instability. For much of 2025, the dominant story was one of relentless institutional adoption and increasing mainstream acceptance. Milestones such as the US moving towards a clearer regulatory framework, highlighted by President Donald Trump signing the GENIUS Act to federalize payment stablecoins, fueled this optimism. Simultaneously, the introduction of spot Bitcoin ETFs normalized exposure within traditional brokerage channels, signaling that the broader crypto economy had finally matured into a legitimate asset class.
This wave of positive sentiment propelled Bitcoin to an impressive new all-time high of $126,223 in early October. However, the optimism proved fleeting. By October 10th, the market's internal structure began to crumble as a brutal unwind eradicated approximately $20 billion in leveraged positions across various crypto platforms. This cascade of liquidations sent Bitcoin's price plummeting by 30% from its 2025 peak, marking its first "red October" in several years. Since then, the Bitcoin market has continued its downward grind, characterized by significantly reduced liquidity, dwindling trading volumes, and larger institutional holders consistently selling into any minor price rebounds. These dynamics offer a compelling explanation for why Bitcoin is presently languishing below $90,000, rather than using that level as a launchpad for further ascent.
The October 10th Hangover: A Shift in Market Psychology
The October 10th liquidation event was more than just a temporary price correction; it fundamentally reshaped the risk appetite of crucial market participants, particularly the marginal liquidity providers. In a truly deep and robust market, volatility, while certainly painful, remains manageable. Market makers confidently quote substantial sizes near the mid-price, arbitrage desks diligently keep different venues aligned, and large flows can clear without causing dramatic price gaps. Post-October 10th, these incentives dramatically inverted.
“Dealers tightened risk limits, and the market began to trade with significantly reduced shock absorption. That brittleness is evident in the behavior of larger holders.”
This cautious shift is palpable. Dealers, wary of sudden price swings, tightened their risk limits, resulting in a market that now possesses considerably less capacity to absorb sudden shocks. This newfound brittleness is starkly evident in the actions of larger Bitcoin holders, often referred to as "whales." As CryptoSlate previously highlighted, these whales have persistently offloaded their Bitcoin holdings, thereby dampening any potential market momentum even after the initial purge of leveraged positions. The changing market sentiment is also clearly reflected in data pertaining to Bitcoin's trading volumes and overall depth.
CoinDesk Data's November exchange review underscores this retreat, indicating that centralized exchange activity has plummeted to its lowest levels since June. According to their findings, the combined spot and derivatives volumes across centralized exchanges witnessed a substantial 24.7% month over month decline, reaching $7.74 trillion. This represents the sharpest monthly drop since April 2024. Specifically, spot volumes slid by 21.1% to $2.13 trillion, while derivatives volumes fell by 26.0% to $5.61 trillion. Notably, the derivatives market share also slipped to 72.5%, marking its lowest point since February 2025. While a market can, in some circumstances, print high prices on low turnover, this dynamic dramatically shifts the moment participants need to execute large trades.
Depth is Down: The Trillion-Dollar Illusion
Perhaps the most alarming warning signal for Bitcoin's health is its current market depth, which quantifies the visible buy and sell interest positioned close to the mid-price. This metric truly exposes the "trillion-dollar illusion" that can sometimes mislead investors. Market capitalization is, at its core, merely a mark-to-market calculation of all outstanding coins; true liquidity, however, refers to the ability to translate a trading intention into an actual execution without incurring a hidden cost in the form of slippage. When order books are robust and thick, and spreads are predictable, sophisticated institutional strategies, such as scheduled rebalancing and hedging without sudden slippage shocks, become genuinely feasible.
Liquidity operates on a compounding principle: dense flow attracts tighter quoting from market makers, which in turn lowers trading costs and encourages even more participation. The reverse, unfortunately, is equally self-fulfilling. Thin liquidity significantly drives up trading costs, compels participants to withdraw, and ensures that the next market shock will leave an even deeper, more lasting scar.
Data provided by Kaiko starkly illustrates this trend, showing that Bitcoin’s aggregated 2% market depth has fallen by approximately 30% from its 2025 high. In practical terms, this dramatic reduction represents the difference between a market that can comfortably absorb a large fund rebalancing without incident, and one that gaps violently through price levels when confronted with that exact same flow. A closer look at Binance, which stands as the largest crypto exchange by trading volume, further reinforces this point.
According to Kaiko, both 0.1% and 1% market depth on BTC pairs had previously risen significantly over the past few years, even surpassing their pre-2022 crash highs. As of Bitcoin's last record high in October 2025, the 1% market depth on Binance exceeded $600 million. However, since that peak, this depth has dramatically dropped to under $400 million at the time of writing. While Binance is not a universal proxy for global liquidity, its status as the world’s leading venue makes it an incredibly useful bellwether for assessing the health of the visible order book. When even the dominant exchange exhibits thinner books near the mid-price, it clearly explains why rallies frequently stall the moment momentum traders encounter genuine selling pressure.
ETF Flows and the Migration of Liquidity Off-Exchange
A second, equally critical structural shift impacting Bitcoin's market involves the evolving landscape of where liquidity now resides, particularly as the spot Bitcoin ETF ecosystem has matured. Data from SosoValue indicates that investors have collectively pulled more than $5 billion from U.S.-listed spot Bitcoin ETFs since October 10th. In a market with deeper liquidity, a demand shock of this magnitude would typically be absorbed gradually, with minimal disruption. However, in a significantly thinner market, it creates a problematic “push-pull” dynamic. Price rallies are frequently halted at key psychological levels because every upward movement inevitably collides with a formidable wall of redemptions, profit-taking, and distribution from larger holders.
Compounding this effect, recent regulatory adjustments have further altered the mechanisms through which capital enters and exits the system. In July, the SEC voted to permit in-kind creations and redemptions for crypto ETP shares, a move designed to harmonize these products with established commodity ETPs. Operationally, this in-kind flexibility provides authorized participants (APs) with a broader array of options for sourcing and delivering Bitcoin, including drawing from internal inventory, engaging with OTC (over-the-counter) counterparties, and utilizing prime-broker channels. While this undoubtedly reduces friction under normal market conditions, it also significantly reinforces a broader, more subtle trend: liquidity is increasingly being internalized and moved away from visible, public exchange order books.
This migration of liquidity helps to explain the current paradox surrounding Bitcoin: it remains a massive, increasingly institutionally held asset, yet it feels mechanically fragile. Private, internalized liquidity is under no obligation to display itself during times of panic or market stress. Consequently, when stress does hit, spreads widen dramatically, available sizes shrink, and trading activity ricochets back onto public venues precisely when their visible depth is at its weakest. This structural fracture, characterized by reduced transparency and internalized flows, poses a significant challenge for Bitcoin's price discovery and stability, potentially trapping unsuspecting investors in the next market unwind.
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