What factors contributed to Bitcoin’s decline below $89.6K?

Bitcoin ETF Investors Dive Deep: Average Holder Now Underwater as BTC Dips Below $89.6K

Bitcoin’s slide below $89,600 has pushed the blended cost basis of U.S. spot Bitcoin ETF buyers into the red, according to composite break-even estimates widely tracked by ETF analysts. While “underwater” periods are common in crypto cycles, the fact that this threshold is now defined by ETF flows matters for liquidity, sentiment, and potential reflexivity in both spot and derivatives markets.

Why the ETF Cost Basis Matters for BTC Liquidity and Price Discovery

Since U.S. spot Bitcoin ETFs launched in January 2024, they have become a dominant conduit for mainstream capital into BTC. The cohort’s average cost basis-estimated using daily creations/redemptions and execution prices-acts like a psychological pivot. When price trades below that pivot, ETF investors are, on average, sitting on unrealized losses.

• Behavioral supply: Underwater holders are more likely to sell into strength, creating overhead supply.
• Flow reflexivity: Sustained drawdowns can trigger net redemptions, forcing authorized participants to source BTC and return it-affecting spot liquidity.
• Volatility feedback: ETF-related spot pressure can propagate into futures funding, basis, and options skew.

How analysts estimate the ETF cohort’s break-even

1. Aggregate daily net creations/redemptions across funds.
2. Approximate purchase price using that day’s VWAP or close.
3. Compute a time-weighted average cost basis across cumulative units outstanding.
4. Adjust for splits, fees paid in-kind (if any), and redemptions that remove the highest-cost lots first.

Methodologies differ, but a consistent theme in 2025 is that the composite ETF cost basis rose with heavy Q1-Q2 2025 inflows, creating a higher break-even that BTC has now breached on this move below $89.6K.

Spot Bitcoin ETFs: Who’s Holding the Bag?

U.S. spot ETFs collectively custody a large, transparent share of circulating BTC, amounting to hundreds of thousands of coins and tens of billions in AUM. While individual fees and positions vary, these vehicles command high daily volumes and tight spreads, making them a key venue for marginal price discovery.

Key dynamics to watch as price sits below the ETF cohort’s average cost:

• Creation/redemption trends: Sustained net outflows signal pressure on spot markets and risk appetite.
• Secondary market discounts/premiums: Persistent discounts can foreshadow redemptions and vice versa.
• Rotation within the suite: Low-fee funds often attract patient accumulators during drawdowns.

On-Chain and Derivatives Context: Is This a Cycle Inflection or a Shakeout?

Macro and microstructure both matter when ETF buyers are underwater:

On-chain checkpoints

• Realized profit/loss sweeps: Spikes in realized losses often align with local capitulation events.
• Long-term holder (LTH) supply: Continued LTH illiquidity historically buffers deeper drawdowns, while rising LTH distribution can prolong them.
• Exchange reserves: Declining reserves suggest structural demand; rising reserves can signal sell-side supply.
• Miner flows: Post-2024 halving issuance is ~450 BTC/day; net miner distribution into weakness can compound drawdowns.

Derivatives signals

• Futures basis and funding: Compressed or negative basis indicates de-risking; steep positive basis can precede bull traps.
• Options skew and term structure: Elevated downside skew implies hedging demand; watch changes around weekly/monthly expiries.
• Liquidation heatmaps: Clusters below key supports can accelerate wick-driven selloffs.

Scenarios and Strategy: Navigating an Underwater ETF Cohort

Three plausible paths

1. Reflexive rebound: Quick reclaim of the ETF break-even triggers short covering and flips flows back to modest creations.
2. Range and rebuild: BTC chops below the ETF cohort’s cost basis, letting dollar-cost-averagers grind the blend lower before a more durable uptrend.
3. Deeper drawdown: Macro shock or structural outflows push BTC further down, inviting value bids at prior high-volume nodes and long-term on-chain supports.

Tactical takeaways for crypto-native participants

• Track the composite ETF break-even and daily flows; they’re now market structure variables, not just headlines.
• Respect liquidity pockets around round numbers and prior ETF creation clusters.
• Use options to define risk into event-heavy weeks; skew often offers cost-effective hedges during stress.
• Watch stablecoin net issuance and L2 activity as real-time gauges of dry powder and network health.

What to Watch Next

• U.S. rate expectations and liquidity conditions across risk assets.
• Cross-asset correlation shifts (equities, gold, and the dollar).
• Global spot ETF development beyond the U.S. and Hong Kong, as additional jurisdictions can broaden demand.
• ETH and multi-asset ETF flows: rotations can subtly affect BTC dominance and narrative momentum.

Conclusion: ETF Psychology Is Now Part of Bitcoin’s DNA

Bitcoin’s drop below $89.6K turning the average spot ETF holder “underwater” doesn’t change the long-term thesis-but it does redefine the near-term battleground. The ETF cohort’s break-even has become a transparent line in the sand that shapes behavior, liquidity, and volatility. Whether the market snaps back, ranges, or slides depends on how flows respond from here. For crypto-native traders, funds, and treasuries, the playbook is clear: monitor ETF creations/redemptions, keep one eye on on-chain stress indicators, and use derivatives strategically to manage risk while the market tests this new psychological pivot.