From Credit Stress to Liquidity Relief: Is Bitcoin Ready to Break Out?

Chart of the Month

Bitcoin Price vs. Net Institutional Demand

Performance

In July, cryptoassets demonstrated notable relative resilience against traditional risk assets amid a month that was dominated by the accelerating unwind of the "AI trade" and a renewed escalation in the Middle East.

Bitcoin started the month with a sharp rebound across the digital asset complex - with altcoins generally outperforming on account of their elevated beta - before settling into a consolidation around 63k–64k USD for the remainder of the month.

By the final week, Bitcoin was advancing (+1.0%) while the S&P 500 retreated (-0.6%), capping a month in which cryptoassets repeatedly outperformed equities on a relative basis despite tightening global financial conditions.

This resilience is all the more remarkable given the magnitude of the drawdown in AI-related equities. The Philadelphia Semiconductor Index (SOX) officially entered a bear market in July, correcting -23.6% from its highs, with roughly 1.5 trillion USD of semiconductor market value evaporating since late June.

The unwind began when Meta's plan to lease surplus data centre capacity punctured the assumption of perpetual compute scarcity, sending the SOX down more than -6% on the 1st of July, and it broadened from there: Micron, Samsung and SK Hynix all fell more than -20% below their recent highs, dragging the KOSPI and the wider Asian complex lower. Notably, Samsung sold off despite reporting record preliminary results, while SK Hynix still managed to complete the largest-ever US listing by a foreign company (~26.5 bn USD) - a juxtaposition that captures the late-cycle character of the theme.

For much of the month, capital rotated within the AI complex rather than leaving it, with the megacap hyperscalers initially gaining roughly +9% while the chip index lost -12%.

By month-end, however, the weakness had spread to the hyperscalers themselves: US equities posted broad losses in the second half of July (S&P 500 -1.6% and Nasdaq -2.9% in the penultimate week alone), and credit markets began to price the stress, with Oracle's 5-year CDS spreads at their highest level since the Global Financial Crisis in 2008 and 1-year implied volatilities across the hyperscaler space making new highs.

With margin debt at a record 1.42 trillion USD, the fuel for a disorderly move remains ample - which is why we continue to flag a disorderly unwind of the AI trade as the key macro risk.

On the macro side, July delivered a genuine round trip. The month opened with an unambiguously soft June employment report (nonfarm payrolls +57k vs 115k consensus, with -74k in downward revisions) and the first dovish signal from Chair Warsh at Sintra, which fully unwound the ~30% probability of a July hike.

The hawkish June FOMC minutes and the re-escalation in the Middle East then reversed the picture: Iran attacked a Qatari LNG tanker near the Strait of Hormuz, the US bombed more than 80 targets, President Trump declared the ceasefire over, and Brent - which had retraced to pre-war levels around 72 USD/bbl in early July - briefly crossed the 100 USD/bbl mark.

US Treasury yields rose in tandem, with the 10-year back above 4.7% and the 30-year yield just reached the highest level since 2007 following the latest FOMC meeting. Although the Fed left rates unchanged, the record number of dissents implied that there was upside pressure on rates building within the committee which is likely the reason why yields soared following the meeting.

At the time of writing this report in late July, Fed Funds Futures are pricing in around a 67% probability for a hike in September. The essential point is that financial conditions are tightening endogenously - via higher energy prices, higher bond yields and wider credit spreads - before a single hike has been delivered.

Precious metals struggled through an environment that should have suited them: gold corrected below the 4,000 USD mark and silver declined towards 60 USD, most likely as the monetary tailwind from Chinese M2 expansion continues to stall.

Within crypto markets, the internals improved meaningfully. Global crypto ETPs recorded three consecutive weeks of net inflows into month-end, and Ethereum has been building relative strength against Bitcoin since June - consistent with the improving fundamentals of on-chain finance, from record tokenized RWA values to stablecoin volumes that already exceed Visa.

Bitcoin, our "canary in the macro coal mine", has been in a 50%+ drawdown since October last year and already reflects a significant amount of negative macro news. Its relative resilience throughout July may therefore be an early signal that the market is starting to anticipate a renewed easing in monetary policy - and we continue to expect Bitcoin to find support earlier than other risk assets.

On the brights side, independent of the latest macro developments, we are already observing a renewed acceleration in institutional demand from depressed levels which is bound to provide a significant tailwind for bitcoin over the coming months (Chart-of-the-Month).

Cross Asset Performance (MtD)

Cross Asset Performance (YtD)

Bottom line: Cryptoassets demonstrated notable relative resilience in July, with Bitcoin consolidating around 63k–64k USD while the AI trade unwound in earnest - the SOX entered a bear market and credit markets began pricing hyperscaler stress. Financial conditions tightened endogenously via the twin headwinds of higher energy prices and higher bond yields, with Brent briefly crossing 100 USD/bbl amid the Middle East re-escalation and the US 10-year yield rising back above 4.7%. On the bright side, and irrespective of the latest macro developments, institutional demand is already re-accelerating from depressed levels (Chart-of-the-Month) - a potentially significant tailwind for Bitcoin over the coming months that reinforces our view that our "macro canary", which already reflects a significant amount of negative macro news, should find support earlier than other risk assets.

Macro Environment

The macro environment for bitcoin continues to be dominated by unresolved tail risks:

• The Strait of Hormuz remains effectively closed which risks a renewed rise in energy prices, inflation, and tighter monetary policy
• Sovereign bond yields have continued to grind higher, especially in Japan and Europe; long-term bond yields in the US have reached a multi-decade high
• The “AI trade” in semiconductors and related markets has started to unwind as investors are anticipating “peak capex growth” in AI infrastructure
• Hyperscalers continue to underperform amid ongoing tightening in credit conditions

That being said, bitcoin- and crypto-specific fundamentals have started improving over the past month:

• Global ETP flows have reversed from net outflows to inflows and have started to reaccelerate 
• Treasury company demand has likely bottomed and Strategy (MSTR) has averted forced liquidation risks
• Bitcoin long-term holder supply has reached a new all-time high signalling record conviction among bitcoin investors
• The convergence between TradFi and crypto is accelerating with record values and volumes in tokenised RWAs; US Clarity Act at the cusp of approval

We think that this ambiguous investment environment - deteriorating macro vs improving on-chain fundamentals - explains bitcoin’s ongoing resilience amid weakness in the broader financial markets.

Especially institutional demand has started to reaccelerate amid the abovementioned reversal in fund flows and stabilisation in treasury company demand.

Institutional Flows vs. New Supply (1-month change)

It is important to highlight that Strategy avoided forced liquidations of its bitcoin (BTC) reserves and has managed to increase its USD cash reserves to more than 22 months of dividend coverage at the time of writing this report in late July.

Furthermore, Strategy’s pledge to hold at least 12 months of USD reserves has eased concerns about a potential default on its dividend payments for its perpetual preferred equities (in particular STRC). In fact, STRC has recovered significantly from its all-time lows and is in the process of pulling back to par.

In other words, Strategy is likely on its way to bring the “digital credit engine” back online and restart its bitcoin purchases via renewed STRC issuances.

Combined with the fact that institutional demand growth is already at the lowest level since late 2022, we expect institutional demand growth to mean-revert to the upside again over the coming months, creating a strong fundamental tailwind for bitcoin.

Bitcoin Price vs. Net Institutional Demand

Besides, one of our recurring macro theses is that Bitcoin has been the “canary in the macro coal mine” that has anticipated tightening in financial conditions and risks for broader financial markets well in advance.

We think that this is true both to the downside and the upside.

In other words, bitcoin will likely anticipate an increasing probability of monetary support by major central banks in advance amid further downside in stocks.

To that extent investors should closely follow the relative performance of bitcoin vis-à-vis equity markets (e.g. NASDAQ 100). As mentioned in our previous reports, bitcoin’s relative valuation vis-à-vis major stocks like Nvidia is still close to multi-year lows based on the relative Mayer Multiple. It is worth noting that bitcoin has been outperforming gold already since its February capitulation low (second chart below).

Bitcoin/Nasdaq 100 Relative Performance

Bitcoin/Gold Relative Performance

We generally think that bitcoin may start to anticipate renewed easing in monetary policy earlier than equities this year.

Moreover, bitcoin may also benefit from idiosyncratic tailwinds unlike equities that may have reached a temporary climax due to the headwind for global semiconductor billings (see our chart-of-the-month in July).

Another long-held view of us is that bitcoin continues to underprice the current growth environment and still exhibits a significant “macro discount”.

This also supports the case that bitcoin may start to outperform equities on a relative basis despite a deterioration in the overall macro environment.

Macro Indicator vs Global Growth priced by Bitcoin*

Nonetheless, the possibility for ongoing consolidation and another leg down for bitcoin in absolute terms is still present.

In particular, we are currently monitoring weakness in hyperscalers / software stocks closely as these companies have been most affected by the tightening of financial conditions which was also consistent with the bear market in bitcoin since the cycle peak in October 25 as outlined in our previous report as well.

For instance, Oracle’s 5-year Credit Default Swaps (CDS) have recently reached a new all-time high as has Oracle’s 1-year implied volatility – an alternative measure of credit risks as shown in our previous Bitcoin Macro Investor report. A further deterioration in these credit risk metrics of major hyperscalers like Oracle may likely exert renewed downside pressure on bitcoin as well due to the old adage “sell what you can, not what you want” in a potential liquidity event.

Deteriorating credit quality in hyperscalers is signalling tighter financial conditions

In that context, we are continuing to observe weakness in leading credit indicators such as private credit funds, leveraged loans, and also business development companies.

Bitcoin / Gold tends to signal tightening in financial conditions earlier

At the very least, a credit event among one of the major hyperscalers could lead to spillover effects into other tech companies due to the circularity of many of those AI data centre deals. In the worst-case scenario, a credit event among hyperscalers may even become systemic as off-balance liabilities of these hyperscalers already amount to close to $2 trillion. Hence, such a credit event may lead to contagion to the broader financial system.

From our point-of-view, this strengthens the case for monetary and fiscal intervention in case such a scenario should actually materialise.

More specifically, the Fed may be forced to intervene and provide more liquidity to the banking system in case of a liquidity crunch in money markets. The US government may intervene via the acquisition of significant stakes in tech companies and probably via other measures such as stimulus cheques. Note that the US government has already announced that the acquisition of significant stakes in major US AI companies is a possibility.

That said, Fed Funds Futures currently anticipate almost 2 rate hikes until the end of 2026 which is supported by a renewed acceleration in US jobs growth. In fact, the ASA Staffing Index – a weekly index of staffing activity in the US that leads other labour market indicators – has re-accelerated to a 4-year high. At the same time, Truflation’s measure of the daily inflation rate in the US has continued to decline, weakening the case for further rate hikes. However, this could change with further increases in energy prices due to the renewed escalation in the Middle East.

Both the unresolved Strait of Hormuz situation as well as the new escalation in the Bab al-Mandeb Strait  - which leads into the Suez Canal - continue to exert upside pressure on crude oil and related markets such as Diesel and Gasoline prices that ultimately present a significant risk for inflation and also sovereign bond yields.

In fact, maritime traffic in the Strait of Hormuz has declined back to pre-Memorandum levels – i.e. less than 10 vessels per day – which implies that global petroleum and distillate reserves will most likely continue to draw down.

We have already seen a significant rise in sovereign bond yields due to rising inflation expectations which has tightened financial conditions in the process even further.

It is quite likely that upside pressure on US Treasury bond yields will remain for the time being as major foreign holders such as Japan and China may be forced to liquidate parts of their US Treasury reserves to fund an increasing oil import bill – something that we highlighted in our Bitcoin Macro Investor report in June as well:

Foreign Treasury Demand Destruction Index vs US 10-Year Yield

Unexpected spikes in Treasury yields usually tend to exert downside pressure on the wider stock market due to tightening in financial conditions.

All of these developments imply that downside risks for bitcoin prevail in the short-term while traditional financial markets – stocks, bonds, and commodites - are getting closer to a potential capitulation event that may spu

r renewed easing of monetary policy conditions which potentially initiate a renewed bull run in bitcoin and other cryptoassets.

Bottom Line: The macro environment remains dominated by unresolved tail risks - from the closure of the Strait of Hormuz and rising sovereign bond yields to escalating credit risks among hyperscalers - which keep short-term downside risks for bitcoin elevated. At the same time, bitcoin-specific fundamentals are clearly improving, with ETP flows reaccelerating, Strategy averting forced liquidation risks, and long-term holder supply at a record high, setting the stage for a mean-reversion in institutional demand growth. As the "canary in the macro coal mine", bitcoin will likely anticipate renewed monetary easing ahead of equities, meaning a capitulation event in traditional markets could ultimately initiate the next bull run in bitcoin and other cryptoassets.

On-Chain Developments

Relative Valuations

The month of July has been favourable for digital assets, with Bitcoin rising from a cycle low of $58k on 1 July to a high of $67k. Against this improving backdrop, we assess how far the recovery has progressed by comparing Bitcoin’s position relative to medium- and long-term trend measures across major asset classes.

Using price relative to the 200-day moving average as a medium-term market reference, headline equity indices remain elevated, while Bitcoin has regained some ground following its recent outperformance.

Gold and silver remain the most historically compressed on this measure, largely reflecting the depth of their correction following a previously parabolic advance. Bitcoin now sits between precious metals and equities, having recovered from more depressed conditions but still trading at a lower relative valuation than headline indices.

Major Asset Mayer Multiple Percentiles

From the perspective of the longer-term 200-week moving average, precious metals and equities remain historically elevated despite the recent cooling in gold and silver. Bitcoin, by contrast, remains deeply compressed on this measure.

Taken together, Bitcoin appears the most consistently compressed across both the medium- and long-term measures assessed. This reflects the rotation in market leadership, with Bitcoin outperforming in 2024, precious metals leading in 2025 and the AI complex accelerating in 2026. Bitcoin has therefore had longer to work through its correction, while the parabolic advances in gold and silver may require a more prolonged period of consolidation and repair.

Bitcoin consequently appears further advanced in its bottoming formation, while liquidity remains concentrated in the AI complex at elevated valuations. From a rotational perspective, this positions Bitcoin as a logical candidate for the next phase of capital reallocation among the assets assessed.

Major Asset Mayer Multiple Percentiles

Bottom Formation Progress

Diving deeper, to assess the progress of Bitcoin’s bottoming formation, we can use two on-chain frameworks that evaluate both the volume of supply absorbed during bear markets and the duration of acute financial stress experienced by investors across the drawdown.

Building on our Coins Transferred Across Bear Markets framework, we continue to monitor how supply is redistributed between the cycle peak and the eventual trough. The central premise is that bear markets facilitate a transfer of coins away from less committed holders and towards participants with greater long-term conviction.

As this process advances, incremental sell-side pressure tends to diminish, gradually tightening the available supply. When demand begins to exceed this reduced supply, price momentum can shift higher, returning a large share of coins to profit. Historically, this transition has coincided with improving market sentiment and the early stages of a new cycle.

To date, approximately 4.5mn BTC have been redistributed during the current cycle, placing the market within the 4.5mn to 5.0mn range observed across prior cycle lows.

Coins Redistributed Across Bear Markets

A common observation across financial markets is that bear markets tend to end only after sufficient investor pain has been absorbed. One way to quantify this is by measuring the number of trading days during each cycle in which the percentage of circulating supply held in profit falls below its minus one standard deviation band.

Historically, Bitcoin cycle lows have formed after approximately 112 to 172 cumulative days below this threshold. The current bear market has recorded 107 days, leaving it less mature than prior examples on this measure, but now approaching a comparable range.

Over time, the expected count across cycles may also decline as a greater share of supply migrates towards long-term holders, investor understanding improves, and permanently lost coins reduce the economically active supply.

Bitcoin: % Supply in Profit — Duration Below -1SD

Whilst these frameworks provide useful insight into the progress of Bitcoin’s bottoming formation, precisely timing the cycle low remains extremely challenging. Taken together, however, they suggest that the market is well advanced in the bottoming process relative to prior cycles.

Risk-on Remains Elusive

Despite these signs of bottoming progress, momentum investors typically require clear confirmation and sustained trend persistence before re-entering the market. At present, the conditions historically associated with a return to risk-on behaviour remain elusive.

Across cycles, it is reasonable to expect the absolute value of unrealised losses to increase as Bitcoin’s market capitalisation grows. To normalise for differences in both an expanding market and drawdown severity, we express unrealised losses in BTC denomination relative to the percentage decline from the all-time high.

Investor portfolios remain highly distressed, with only 17% of trading days recording a larger level of unrealised loss on this basis. In addition, the metric remains above both its historical mean and median, a region that has often acted as a transition zone between risk-off and risk-on conditions.

Unrealised Loss (BTC) per Percent Drawdown

Furthermore, capital-flow conditions can be assessed through the 30-day percentage change in the Realised Cap. The Realised Cap is a foundational on-chain metric that values each coin at the price at which it last transacted before summing these values across the network. It therefore provides an estimate of the value invested towards the asset class.

Analysing its 30-day percentage change provides insight into the direction of capital formation. Capital is created when coins are spent and revalued at higher prices, while capital is destroyed when coins are disposed of and revalued lower.

At present, the market remains in a loss-driven regime, with capital destruction continuing to dominate. This remains characteristic of risk-off conditions, as risk-on environments are typically associated with expanding liquidity. A sustained return to positive capital flows would therefore represent a constructive development.

Bitcoin: Realised Cap

In addition, we observe that the average market participant is either realising losses or transacting around breakeven. The same pattern is visible among both Short-Term Holders, defined as investors who acquired their coins within the past 155 days, and Long-Term Holders, whose coins are older than 155 days. This points to a notable degree of homogeneity in behaviour across both newer and more tenured investors.

On balance, market participants appear willing to exit once price returns to their cost basis, further highlighting the cautious sentiment that continues to shape investor expectations for future market conditions.

Bitcoin: SOPR (7d SMA)

Market Sensitivity Rises

Although the market has recently recovered, volumes across all major market sectors remain substantially depressed, suggesting that investor engagement remains muted. Historically, upward moves supported by rising and sizeable volumes have tended to display greater durability.

Low volumes, however, point to constrained liquidity across the market, increasing the potential for relatively modest flows to have an outsized impact on price action, suggesting that the market remains susceptible to shocks.

Bitcoin: Global Volumes

To complement the volume assessment, we can turn to the on-chain domain to assess whether investor positioning reinforces the fragility implied by thin order books.

The Realized Supply Density metric captures the proportion of supply held within ±10% of the current spot price, illustrating how many coins are positioned close enough to be affected by relatively small price movements. When a large portion of coins cluster around the spot level, even modest price moves can impact a wide group of holders, increasing market sensitivity and sustaining volatile conditions.

At present, the metric has been rising since the February capitulation as coins continue to be acquired within the subsequent trading range. Whilst the metric remains under the heightened volatility threshold, its upward trend suggests that market sensitivity is increasing.

The combination of illiquid markets and dense supply clusters around the spot price can create conditions for volatile price action.

Realised Supply Density: Volatility Gauge

Market Navigation

With the market beginning to recover and volatility building, the key question remains whether the move represents a short-lived bounce that provides exit liquidity, or a more meaningful transition out of the market bottom. To assess this, we turn to two key on-chain pricing levels:

• The True Market Mean at $76k estimates the average acquisition price of active investors by excluding supply considered lost or dormant, including early miner and Satoshi-era coins.
• The Short-Term Holder cost basis (STH-CB) at $69k represents the average acquisition price of newer market entrants and has historically acted as a delineator between local bull and bear regimes.

Together, these levels help define the boundary between local and macro risk conditions. The degree of deviation from them provides insight into the intensity of market sentiment, with prices far above indicating euphoria and prices far below reflecting extreme fear.

At present, price remains decisively below both measures but appears to be preparing for an attempt to reclaim the STH-CB. This represents the first major test for bulls seeking to regain control of local market structure, and the subsequent price response may provide important information on the strength of underlying momentum.

Bitcoin: On-Chain Momentum Levels

On the downside, we continue to reiterate our base case that terminal support forms somewhere between the 200-week moving average near $62.4k and the Realised Price at $53.3k, which represents the average acquisition price of market participants.

Price entered this range multiple times during June, suggesting that a substantial degree of market damage has already been absorbed. It has also found some support around the 200-week moving average, which would represent a constructive improvement in market structure if sustained. However, while the market remains in both a local and macro risk-off regime, these terminal valuation levels remain in play.

BTC Price, Realized Price & 200W MA

Bottom Line: On balance, the market appears well advanced in its bottoming formation, but the transition into a durable risk-on regime remains incomplete. A sustained reclaim of the Short-Term Holder cost basis at $69k would signal an improvement in local market structure, while a decisive break and hold above the True Market Mean at $76k, supported by improving capital flows and broader market participation, would confirm a return to macro risk-on conditions and mark the end of the bear market. Until then, the terminal valuation range between the 200-week moving average and the Realised Price remains in play.

Bottom Line

Appendix

Cryptoasset Market Overview

Global Cryptoasset Market Caps

Bitcoin Performance

Ethereum Performance

Ethereum vs Bitcoin Relative Performance

Altseason Index

Bitcoin vs Crypto Dispersion Index

Cryptoassets & Macroeconomy

Macro Factor Pricing

How much of Bitcoin's performance can be explained by macro factors?

Cryptoassets & Multiasset Portfolios

Multiasset Performance with Bitcoin (BTC)

Rolling correlation: S&P 500

Rolling correlation: Bund Future

Rolling correlation: Gold

Rolling correlation: Dollar Index (DXY)

Cross Asset Correlation Matrix

Cryptoasset Valuations

Bitcoin: Composite Valuation Indicator

Bitcoin: Valuation Metrics

On-Chain Fundamentals

Bitcoin: Closing Price

Bitcoin's supply scarcity is more pronounsed that during the last cycle

Bitcoin Long-term Holder (LTH) Dashboard

Bitcoin Short-term Holder (STH) Dashboard

Bitcoin: Price vs Average Accumulatio Score

Bitcoin Accumulation Score

Bitcoin: Steady increase in scarcity will provide a tailwind for price appreciations

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