Bitcoin slows after ‘Uptober’ surge, data shows profit margins tightening

Bitcoin’s recent slowdown in momentum is fueling doubts about the strength of the latest rally, as new data from digital asset firm Matrixport shows that market-wide profitability is beginning to shrink, a trend that historically signals weakening conviction among active investors.

According to the data, the market remains profitable, but those profits are shrinking fast. When compared against its 90-day momentum model, the indicator suggests waning enthusiasm and a potential shift toward a prolonged consolidation phase.

“While this indicator remained largely bullish throughout 2023 and early 2024, recent readings indicate that momentum has slowed significantly, suggesting a waning conviction among investors and raising concerns that the market may be entering a more sustained consolidation phase,” Markus Thorsen wrote in the chart shared by Matrixport on X.

Momentum cools after ‘Uptober’ surge

Bitcoin’s bullish streak is now shaky in October, which many dub “Uptober” because it is a historically bullish month for Bitcoin. 

Following the market crash that saw Bitcoin drop to around $104,000, the digital asset experienced a brief rally that took prices to over $113,000 on October 21. However, that momentum was not sustained as prices dropped not too long after to around $107,000, as it struggles to sustain a breakout above $108,000.

Analysts are saying that the rally is faltering due to slowing trading volumes and cooling derivatives activity.

Data from CryptoQuant indicates that the net unrealized profit and loss margins across Bitcoin wallets have thinned and is currently negative as the market enters what analysts describe as a “profit compression zone.” 

CryptoQuant’s 7-day trend data show that exchange reserves are slowly going up, and this signals increasing selling pressure from holders, which also means increasing volatility in the derivative markets.

Shrinking profitability combined with declining realized gains suggests the market is running out of fresh momentum.

BTC goes from disbelief to hesitation

Market behavior over the past week suggests investors are moving from disbelief, when traders doubt the sustainability of a recovery, to hesitation, where fading conviction dampens upside potential. 

According to CryptoQuant’s analysis, Bitcoin funding rates have hovered around zero after a week of mild negative readings, and it’s now back to the mild negative readings, indicating a cautious but indecisive market stance. 

Currently, the funding rates are rising slowly. Given that the trend is currently on the rise, it can be inferred that long position traders are willing to pay short position traders, but the pressure of short position traders is still relatively high. The Short Term Output Profit Ratio on CryptoQuant stands at 1, meaning short-term investors are selling at breakeven rates or with a little profit.

This cooling sentiment follows a volatile start to October, when billions were wiped from derivatives positions in a flash correction. Analysts say that while the long-term structure remains intact, the short-term psychology of the market has shifted.

The key question now, according to analysts, is whether this slowdown is merely a cooling-off phase or the beginning of a more sustained correction. Historical patterns show that Bitcoin often pauses to reset after sharp gains, with consolidation phases lasting several weeks before another leg higher.

For now, Bitcoin remains in profit on average, but barely. So far, the shrinking gap between the active investors’ cost basis and the current price is a sign that conviction is waning.

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