Velvet [VELVET], one of the market's strongest recent gainers, dropped sharply as leveraged capital moved out of the token. VELVET fell as much as 37% during the day, with bearish pressure increasing across the market.

The decline drew comparisons with DeXe's [DEXE] 87% crash, as both tokens had previously ranked among the market's leading gainers. The parallel underscored a recurring pattern in which tokens that rally aggressively on leverage-backed demand become vulnerable to equally sharp corrections when that leverage unwinds.

Despite the latest pullback, Velvet was still up 367% over the past 90 days.

Whale activity rises during VELVET's drop

Whale activity increased significantly as Velvet sold off.

According to CoinGlass, the Whale vs Retail Delta rose to 0.098, marking one of its highest readings this year. The positive reading indicated heightened whale participation, but it did not prove that whales were responsible for the decline.

At the same time, $32.33 million in perpetual-market capital exited over the past day. Net outflows totaled $1.55 million during the same period.

Over a 15-day period, total leveraged outflows reached $516 million, while Netflow stood at approximately $16.1 million. The reduction in leveraged capital weakened VELVET's derivatives market and made price support more reliant on spot-market demand. This shift matters because tokens that depend heavily on derivatives liquidity for price discovery can experience amplified downside when that liquidity departs.

Short positioning strengthens in derivatives market

The drop in leveraged capital occurred alongside a clear shift toward short positioning.

VELVET's Funding Rate declined to -0.0314%, meaning short traders were paying long traders to keep their positions open. The negative reading pointed to stronger bearish positioning in Velvet's perpetual market.

The last similar Funding Rate decline took place on the 29th of June.

Before that move, positive Funding Rates showed that long positioning had been dominant in the market.

Afterward, positive readings stayed close to neutral, indicating that bullish leverage had weakened considerably. If a similar pattern develops again, limited long positioning could reduce the chances of a leverage-driven rebound.

Spot outflows suggest accumulation, but confirmation is limited

In contrast to derivatives activity, spot investors appeared to accumulate VELVET during the price decline. Spot Netflow fell to -$357,000, indicating that exchange outflows were greater than inflows.

Negative Spot Netflow can point to accumulation because tokens withdrawn from exchanges are less immediately available for sale.

However, the metric does not confirm that every withdrawal represented a new purchase. Over seven days, Spot Netflow reached -$1.03 million, extending the pattern of net exchange outflows.

Sustained spot demand could help cushion VELVET's decline, while weak bullish leverage may limit the pace of any broader recovery. The divergence between spot outflows and derivatives outflows highlights a key tension: whether longer-term holders are positioning for recovery while leveraged traders de-risk, or whether the spot bid is insufficient to offset the loss of derivatives support.

Final summary

VELVET fell 37% as leveraged outflows and bearish derivatives positioning weighed on momentum.

Spot accumulation provided some support, but subdued bullish leverage could constrain any immediate recovery.