Bitcoin’s (BTC) sell-off is increasingly being interpreted not as the start of a new breakdown, but as the midpoint of a structurally different bear market defined by leverage reset and capital rotation rather than panic-driven capitulation.

According to an analysis by Kaiko, the roughly 50% drawdown from Bitcoin’s cycle highs aligns closely with historical post-peak corrections seen in prior halving cycles.

While the price decline has been sharp, market behavior beneath the surface suggests a controlled unwind rather than systemic stress.

Deleveraging Replaces Capitulation

Kaiko’s data shows that the recent downturn has been accompanied by a steep contraction in derivatives exposure, with futures open interest falling by more than half from peak levels.

Liquidations were sizable, but notably lacked the cascading disorder typically associated with late-stage capitulation events.

Spot trading volumes remained muted throughout the decline, a sign that retail participation has largely stepped away rather than rushing to exit positions.

This absence of panic selling differentiates the current environment from 2022, when forced liquidations and liquidity freezes accelerated losses across the market.

Instead, the drawdown reflects a deliberate reduction in leverage as traders and funds de-risk amid tighter financial conditions and weaker macro signals.

Bitcoin’s price action has increasingly mirrored broader risk assets, reinforcing the view that macro liquidity, not crypto-specific shocks, is driving market behavior.

Capital Rotates, Not Exits

One of the clearest signals supporting the “mid-cycle reset” thesis is the rise in stablecoin dominance, which has climbed above 10% of total crypto market capitalization.

Historically, Kaiko notes, similar levels were last observed during periods of defensive positioning rather than outright market abandonment.

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This shift suggests capital is moving into sidelined liquidity, waiting for clearer signals, rather than exiting the crypto ecosystem entirely.

Such conditions have previously preceded extended consolidation phases, where price discovery slows and volatility compresses before accumulation resumes.

At the same time, ETF flow data indicates institutional exposure has become more tactical.

While inflows that defined earlier stages of the cycle have faded, holdings remain substantial, pointing to repositioning rather than wholesale withdrawal.

A Selective Market Takes Shape

Another defining feature of the current phase is growing divergence across crypto assets.

While many altcoins have retraced toward 2023 lows, a small number of tokens linked to active revenue generation and institutional use cases have shown relative resilience.

Kaiko highlights this divergence as a sign of a maturing market structure, where capital is increasingly concentrated in assets with measurable fundamentals rather than broadly lifting the entire sector. This selective behavior contrasts sharply with previous cycles, when speculative momentum often moved markets in unison.

Taken together, the data suggests Bitcoin may be navigating the middle stretch of a bear market that is less violent but more prolonged.

With leverage largely flushed and liquidity cautious, the next phase is likely to depend less on derivatives-driven rallies and more on sustained spot demand and macro stabilization.

Until those conditions emerge, analysts caution that recovery is likely to be uneven, marked by consolidation and rotation rather than a rapid return to cycle highs.

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