TAO's Path to Recovery: Derivative Outflows and Spot Buying Dynamics in Q3 2025

The story of Bittensor (TAO) in Q3 2025 is one of turbulence and resilience. After a 15% price plunge triggered by $48 million in derivatives outflows, the token has shown signs of a potential rebound. This analysis unpacks the interplay between derivative market dynamics, spot buying behavior, and institutional interest to assess TAO's path to recovery.

Derivative Outflows: A Catalyst for Short-Term Volatility

Derivatives markets have long been a double-edged sword for crypto assets, and TAO's Q3 experience underscores this. According to data from CoinGlass and an Ambcrypto report, the $48 million outflow from leveraged positions in October 2025 led to a sharp 15% price drop within 24 hours. Open interest in TAO derivatives fell from $340 million to $270 million, reflecting reduced speculative activity, according to a BTCC report. The liquidation pressure was compounded by a derivatives trading volume ratio of 0.90, signaling seller dominance, the Ambcrypto report notes.

While such outflows typically signal bearish sentiment, they also create opportunities for long-term buyers. The collapse in open interest suggests that forced liquidations may have cleared the field of weak hands, potentially setting the stage for a rebound.

Spot Buying Resilience: A Bullish Counterpoint

Amid the derivatives-driven selloff, spot investors demonstrated remarkable confidence. Between October 14 and 16, 2025, buyers accumulated $13.7 million worth of TAO, the Ambcrypto report states. This accumulation, despite the 15% price drop, indicates that institutional and retail investors view TAO's fundamentals-particularly its role in decentralized machine learning-as undervalued.

Technical indicators further support this narrative. The Money Flow Index (MFI) for TAO remained above 50, a threshold often associated with bullish momentum, the Ambcrypto report observes. Meanwhile, the Accumulation/Distribution (A/D) line showed an upward trend, suggesting that buying pressure is outweighing selling pressure, according to the same Ambcrypto piece. These signals imply that the recent outflows may have been a short-term correction rather than a bearish reversal.

Institutional Legitimacy and Macro Tailwinds

TAO's recovery is also being fueled by growing institutional interest. Grayscale's filing for a Bittensor Trust has added a layer of legitimacy, with the trust accumulating $10.8 million in assets within its first three months, according to a Bankless Times article. This move, coupled with a $10 million investment from Digital Currency Group's Yuma Asset Management, highlights TAO's appeal to institutional investors seeking exposure to AI-driven infrastructure, as reported by Coinspeaker.

On the macroeconomic front, the Federal Reserve's rate cut in Q3 2025 has broadened risk appetite, particularly in technology and AI-related assets, the Ambcrypto report notes. TAO, as a token underpinning decentralized machine learning, benefits from this tailwind. Additionally, the AI boom has driven demand for TAO's network, which processes over 100 million queries daily, per the Ambcrypto coverage.

Risks and the Road Ahead

Despite these positives, TAO remains vulnerable to renewed derivative outflows. A sustained recovery will depend on maintaining spot buying momentum and avoiding further liquidation clusters. If the price can hold above $380-a level it recently reclaimed from an intraday low of $370-technical analysts project a potential move toward $450, the Bankless Times article projects.

Conclusion

TAO's Q3 2025 price action reflects a classic case of short-term pain leading to long-term gain. Derivative outflows created a buying opportunity for spot investors, who have since signaled confidence through accumulation. With institutional backing and favorable macroeconomic conditions, TAO's path to recovery appears plausible-though not guaranteed. Investors should monitor open interest and technical indicators closely, as these will be critical in determining whether the current rebound is a sustainable trend or a temporary reprieve.