Bitcoin's Vulnerability at $110K: A Confluence of Funding Rates, MVRV Divergence, and Retail Volatility

Bitcoin’s price action near $110K has become a focal point for investors, as a confluence of technical, on-chain, and macroeconomic factors signals growing short-term bearish risks. While the asset’s long-term fundamentals remain robust, the interplay of neutral perpetual funding rates, divergent momentum indicators, and fragile retail sentiment creates a precarious environment. This analysis dissects the vulnerabilities and outlines strategic positioning for downside protection.

1. Neutral Funding Rates: A Double-Edged Sword

Bitcoin’s perpetual funding rates in Q3 2025 have stabilized at approximately $366k per hour, a marked decline from the >$1M per hour peaks observed in March and December 2024 [2]. This neutrality reflects a market in consolidation, neither overbought nor oversold. However, historical precedents show that such conditions can precede both bullish and bearish phases, depending on broader dynamics. For instance, negative funding rates in September 2024 and July 2023 were followed by 80% and 150% price surges, respectively [4]. Yet, in the current context, the lack of directional bias suggests a fragile equilibrium.

The total open interest for BTC perpetual contracts has surged past $70 billion, driven by institutional inflows into spot ETFs and leveraged futures demand [2]. This expansion has amplified market sensitivity to macroeconomic shifts. Notably, funding rates briefly turned negative after BTC hit a high, signaling cooling long-side enthusiasm [5]. Such volatility underscores the derivative market’s dominance—accounting for 68% of Bitcoin’s trading volume in 2025 [3]—and its susceptibility to sudden liquidity imbalances.

2. Technical and On-Chain Bearish Signals

Bitcoin’s technical indicators paint a cautionary picture. The Relative Strength Index (RSI) has shown a bearish divergence, with prices rising while the indicator declines—a classic precursor to trend reversals [1]. A confirmed head-and-shoulders pattern at $113K further reinforces this narrative, historically signaling bearish reversals [1]. The 200-week moving average (200WMA) at $50K now acts as a critical psychological and technical support level; a break below this could trigger a prolonged bearish phase.

On-chain metrics amplify these concerns. The Realized Price—a measure of the average cost basis of all Bitcoin holders—is trading at an 11.3% discount to spot prices, mirroring the 2021–2022 bear market [1]. This “underwater” condition reflects capitulation risk, as holders face mounting unrealized losses. Meanwhile, the MVRV death cross in August 2025 has sparked debate about a potential bearish reversal, though the current MVRV ratio of 2.1 places Bitcoin in a “neutral to bullish” zone [3]. Historical false alarms, such as the 2020 death cross, highlight the need for caution in interpreting this signal.

Retail participation remains a wildcard. The UTXO Realized Price Distribution (URPD) indicates accumulation in the $108k–$116k range during recent pullbacks, suggesting constructive dip-buying behavior [4]. However, short-term holder profitability has rebounded to 60%, a fragile level that requires sustained recovery above $114k–$116k to restore confidence [4]. Off-chain indicators, such as neutral futures funding rates, could signal weakening momentum if demand fades [4].

3. Macroeconomic Catalysts and Policy Shifts

The Federal Reserve’s evolving policy stance has introduced new variables. Bitcoin’s price response has shifted from inflation data to employment surprises, with the market now reacting more strongly to nonfarm payroll reports [1]. This shift aligns with the Fed’s pivot toward employment-focused monetary policy, which could create divergent correlations between BTC and traditional assets.

The U.S. bond market’s repositioning—evidenced by a steepening Treasury yield curve—further complicates the funding environment. As investors anticipate rate cuts, Bitcoin’s cost of capital may compress, but this also increases exposure to liquidity shocks [1]. The interplay between these macroeconomic forces and Bitcoin’s derivative-heavy ecosystem remains a key risk.

4. Strategic Positioning for Downside Protection

Given the confluence of risks, investors should adopt a defensive posture. Hedging with inverse ETFs and tiered stop-loss orders can mitigate exposure to potential corrections [3]. Diversified portfolio allocations—balancing Bitcoin with macro-hedged assets—can further reduce volatility risk.

Monte Carlo simulations project a 5% probability of Bitcoin falling below $41,000 by late 2026, with the 200WMA likely reaching $60,000 by then [1]. While these scenarios remain probabilistic, they underscore the importance of liquidity management and position sizing.

Conclusion

Bitcoin’s vulnerability at $110K stems from a fragile equilibrium between neutral funding rates, divergent technical indicators, and macroeconomic uncertainty. While the asset’s long-term trajectory remains intact, short-term bearish risks demand proactive risk management. Investors must balance caution with conviction, leveraging hedging tools and diversified strategies to navigate the coming volatility.

**Source:[1] Bitcoin's Potential Entry Into a Nightmare Bear Cycle [https://www.bitget.com/news/detail/12560604942203][2] BTC Options and perpetual market hit new highs [https://miniapp.gate.com/post/status/12789182][3] Bitcoin's MVRV Death Cross: Bearish Signal or False Alarm? [https://www.bitget.com/news/detail/12560604945395][4] Accumulating in the Gap [https://insights.glassnode.com/the-week-onchain-week-35-2025/]