Bitcoin's Deleveraging: A Flow-Based Analysis of the Current Drawdown

The recent Bitcoin drawdown is a pure flow event, driven by a massive reduction in leverage. In just a few sessions, BTC futures open interest has fallen from roughly $61 billion one week ago to about $49 billion today, a decline of more than 20% in notional exposure. This is a controlled unwind, not a disorderly liquidation shock.

The move has driven price down roughly 19% from recent highs, with Bitcoin now trading in the mid-$60,000s. The symmetry between the drop in open interest and price action suggests leverage was reduced alongside the decline, rather than causing a chaotic cascade. Total liquidations over the week were meaningful but not climactic, with an estimated $2 to $2.5 billion concentrated in Bitcoin futures.

Viewed through a flow lens, this deleveraging is the primary driver. The event has been extreme in speed, registering a -6.05σ move on the rate-of-change Z-score on February 5, placing it among the fastest single-day crashes in crypto history. Yet the underlying market structure has held, with the drawdown now approaching a 50% peak-to-trough decline but occurring alongside materially lower volatility than prior bear markets.

Institutional Flows and Market Sentiment

Institutional sentiment has turned decisively defensive. On February 18, Bitcoin spot ETFs saw $133.3 million in net outflows, with BlackRock's IBIT shedding $84.2 million and Fidelity's FBTC losing $49 million. This marks a continuation of a broader trend, as ETF investors have now pulled over $4.1 billion in net assets from crypto asset ETFs year-to-date.

The outflows confirm persistent sell-side aggression in the market. Spot CVD is entrenched in negative territory, a technical signal that confirms the defensive posture of large players. This is a key flow-based indicator that institutions are trimming exposure rather than buying the dip, even as the asset trades at significant discounts.

The pattern is not uniform across the crypto asset class. While Bitcoin and Ethereum ETFs saw outflows, Solana spot ETFs bucked the trend with $2.4 million in net inflows. This divergence suggests investors are rotating within crypto rather than exiting entirely, but the dominant flow is still a net withdrawal from the largest funds.

On-Chain Supply and Potential Support Levels

The on-chain supply picture shows a market converging toward a classic bear market bottom signal. Currently, 11.1 million BTC are in profit while 8.9 million are in loss. Historically, when these two supply cohorts balance out, it has marked definitive cycle lows. If this convergence occurs at current cost bases, it would imply a potential support level near $60,000, similar to bottoms seen in 2015, 2019, and 2022.

This technical setup is occurring against a backdrop of severely constrained liquidity. The 90-day Realized Profit/Loss Ratio remains stuck between 1–2, a zone that characterizes transitions to more stressed conditions where realized losses begin to dominate. This indicates profit-taking is subdued and capital rotation is limited, directly capping the market's ability to rally sustainably.

The result is a fragile equilibrium. Price action is being absorbed within a dense demand cluster between $60,000 and $69,000, established during the H1 2024 consolidation. With large-entity accumulation still absent and institutional demand no longer cushioning the downside, the path of least resistance remains toward the lower structural boundary defined by the Realized Price near $54,900.