Bitcoin Nears Potential Market Bottom as Spot Volumes Reset to Cycle Lows

Bitcoin is entering its fifth consecutive month of correction, but analysts say the slowdown in spot demand and trading activity may signal a late-stage market reset rather than deeper downside. Spot trading volumes have fallen sharply since October, returning to levels last seen in early 2024, a trend that some market watchers interpret as a potential sign of capitulation and a developing market bottom.

Bitcoin currently trades around $78,614, down roughly 37.5% from its October peak. The decline followed a sharp liquidity shock on Oct. 10, when a wave of liquidations swept through the futures market and erased more than 70,000 BTC in open interest in a single day, equivalent to over $8 billion.

Liquidity Washout Reshapes Market Structure

Analysts say the October liquidation event marked a turning point in market structure. “Spot demand is drying up,” said CryptoQuant analyst Darkfost, noting that the correction “has been largely driven by the Oct. 10 liquidation event.”

Since then, overall liquidity conditions have tightened. Stablecoin balances on exchanges have declined, while total stablecoin market capitalization has fallen by roughly $10 billion, reducing readily available capital for trading and speculation.

Spot market data tells a similar story. Bitcoin spot trading volumes on major exchanges have dropped from around $2 trillion in October to roughly $1 trillion by the end of January, according to CryptoQuant.

Nonetheless, Binance remains the largest venue, but its Bitcoin spot volume has fallen to about $104 billion, down from nearly $200 billion in October. Gate.io and Bybit recorded $53 billion and $47 billion, respectively, during the earlier peak.

Capitulation Signals Point to Possible Bottom

Despite the negative headline numbers, some analysts view the current environment as a necessary reset. Alphractal founder and CEO Joao Wedson described the drawdown as “bitter medicine, but a necessary market move.”

Furthermore, Wedson explained that Bitcoin market bottoms typically form when short-term holders fall underwater and long-term holders begin to absorb losses. “Short-term holders are already underwater,” he said, adding that long-term holders have not yet reached that stage.

Historically, bear markets end when the short-term holder’s realized price drops below the long-term holder’s realized price, while bull markets begin once it crosses back above. For now, the short-term holder realized price remains above that of long-term holders, though a sustained move below the $74,000 support level could push Bitcoin into clearer bear market territory.

Until spot volumes recover, risk appetite is likely to remain subdued. Still, analysts say the sharp decline in activity may reflect exhaustion among sellers, setting the stage for a healthier recovery once demand returns.

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