Are Bitcoin’s Recent Gains a Trap? Analysts See Bear Market Continuing

Bitcoin has seen several short-term price rallies during its ongoing bear market, but evidence from on-chain data and technical analysis suggests these are not sustainable recoveries. Market participants and analysts warn these rallies may function as liquidity traps, where buying interest fails to translate into lasting upward momentum, raising questions about the bear market’s true trajectory.

What happened

Since the onset of the current bear market, Bitcoin has experienced multiple brief price rallies, often described as "bounces." These rallies, however, have not led to sustained upward trends or a definitive market recovery. On-chain data from Glassnode highlights that during these rallies, key metrics such as the realized price and supply held by long-term holders (LTH) reflect distribution rather than accumulation phases. This pattern indicates that rather than genuine demand driving the price increases, holders—particularly long-term investors—are offloading coins.

Further complicating the picture, exchange net flows have shifted during these rallies. Data from Glassnode and CoinMetrics show that exchange outflows, which would normally signal accumulation (users moving coins off exchanges to private wallets), have slowed or even reversed. This suggests increased selling pressure as market participants potentially capitalize on short-term price gains by moving coins onto exchanges to sell.

From a technical standpoint, Bitcoin’s price remains below critical resistance levels, most notably the 200-day moving average (MA). Historically, in bear markets, such moving averages act as strong resistance points. The failure to break above these levels reinforces the view that the bear market structure remains intact. Volume analysis supports this interpretation: trading volumes during rallies are generally lower than during sell-offs, implying weaker conviction behind upward price moves.

Historical parallels have been drawn with previous bear markets, where similar patterns of short-lived rallies—often called "liquidity traps"—occurred. According to reports from Delphi Digital, these rallies trap traders and investors into buying at apparent recoveries, only for prices to reverse as selling intensifies, typically by weaker hands exiting positions.

Meanwhile, institutional actors such as Bitcoin ETF issuers (e.g., Grayscale and ProShares) express cautious optimism about the market outlook but emphasize the importance of regulatory clarity and macroeconomic stability before a sustained bull market can materialize. Their public filings and investor communications highlight these conditions but do not provide definitive guidance on how their holdings influence price dynamics during these rallies.

Why this matters

Understanding whether Bitcoin’s recent rallies are genuine recoveries or liquidity traps has significant implications for market participants and broader financial markets. If rallies are indeed traps, investors risk misallocating capital during false signals, potentially exacerbating volatility and prolonging the bear market. This dynamic can undermine confidence in Bitcoin’s price stability and its emerging role as a digital asset within diversified portfolios.

The structural weakness indicated by persistent selling during rallies—reflected in on-chain distribution and exchange inflows—suggests demand remains fragile. This fragility limits the likelihood of a sustained bull market absent external catalysts such as improved regulatory clarity or macroeconomic shifts. For institutional investors and regulators, recognizing the nature of these rallies informs risk management and policy decisions amid ongoing debates about cryptocurrency’s role in financial markets.

Moreover, the inability to break above key technical resistance levels signals that Bitcoin’s price action remains constrained by bearish market sentiment. Lower volume during upward moves further illustrates a lack of conviction, which can deter new participants and reduce liquidity. This environment may also affect related markets, including derivatives and crypto-linked investment products, by reinforcing cautious positioning.

What remains unclear

Despite detailed on-chain and technical analyses, several important questions remain unresolved. There is no consensus or definitive indicator that can reliably distinguish in real time between a liquidity trap rally and a genuine market bottom. Specific thresholds—such as precise exchange inflow/outflow volumes or changes in LTH supply—that would signal a true recovery remain unidentified.

The quantitative impact of macroeconomic factors, including inflation trends and interest rate movements, on the sustainability of Bitcoin rallies is also not clearly established. While these factors are acknowledged as headwinds, their direct influence on rally durability versus trap formation lacks precise measurement.

Additionally, the role of institutional actors—such as ETF issuers and large holders—in shaping short-term price bounces is not fully transparent. Public filings provide limited insight into how these entities’ trading behaviors may contribute to or mitigate liquidity traps.

Finally, emerging on-chain metrics or sentiment indicators with predictive power for identifying deceptive rallies have yet to be validated conclusively. This gap limits market participants’ ability to act on early warnings or signals distinguishing false recoveries from lasting rebounds.

What to watch next

• Monitoring exchange net flows for sustained changes indicating accumulation or distribution phases, as reported by Glassnode and CoinMetrics.
• Tracking Bitcoin’s ability to break and hold above key moving averages, particularly the 200-day MA, to assess shifts in market structure.
• Evaluating volume trends during price rallies versus sell-offs to gauge conviction behind moves.
• Observing regulatory developments and guidance related to Bitcoin ETFs and broader crypto market oversight, as these factors influence institutional confidence.
• Following updates from major institutional holders, including disclosures and investor communications, for indications of strategic positioning or changes in market engagement.

Bitcoin’s recent price rallies illustrate the complexities of navigating a bear market characterized by weak demand and structural resistance. While the data and analysis point to recurring liquidity traps rather than sustained recoveries, unresolved questions about precise market signals and external influences underscore the continuing uncertainty. Market participants and observers will need to closely monitor evolving on-chain metrics, technical indicators, and regulatory developments to better understand the bear market’s trajectory and potential turning points.

Source: https://cryptopotato.com/bitcoin-bear-market-far-from-over-analysts-warn-of-traps-and-bounces/. This article is based on verified research material available at the time of writing. Where information is limited or unavailable, this is stated explicitly.