Bitcoin (BTC) Faces Deep Correction, Short-Term Holders in Loss

Bitcoin has encountered its most substantial correction since late 2022, trading below the 200-day moving average (200DMA) and placing a significant number of Short-Term Holders in an unrealized loss, according to Glassnode Insights.

Price Performance

In the 2023-24 cycle, Bitcoin's price action has shown both similarities and differences compared to previous cycles. Following the collapse of FTX, the market saw roughly 18 months of steady price appreciation. This was succeeded by three months of range-bound trading after reaching a $73,000 high due to ETF optimism. Between May and July, Bitcoin experienced a drawdown exceeding 26% from its all-time high (ATH).

Despite this downturn, the correction is notably shallower than in past cycles, indicating a robust underlying market structure and reduced volatility as Bitcoin matures as an asset class.

New Investors Underwater

The volume of supply held by Short-Term Holders has grown significantly since January 2024, driven by explosive price action following the launch of spot ETFs. However, recent months have seen this demand profile plateau, leading to a supply overhang as fewer Long-Term Holders take profits and fewer new buyers step in.

During sustained bull markets, local bottoms typically form when the volume of Short-Term Holder supply in loss saturates around 1-2 million BTC. In more severe cases, this can peak between 2-3 million BTC. The recent sell-off to the $53,000 level pushed the volume of coins held below their cost basis to over 2.8 million BTC, marking the second such occurrence in the past 12 months.

A Halt On Profitability

As spot prices contract, the ratio between investor Realized Profit and Realized Loss has declined, now sitting in the 0.50 to 0.75 range. This is a neutral level typically seen during bull market corrections. Sharp fluctuations in this metric have also been observed throughout the 2019-2022 cycle, reflecting inherent instability and investor uncertainty.

This week, Short-Term Holders realized a total loss of approximately $595 million, the largest since the 2022 cycle low. Despite the severity in dollar terms, the losses are relatively typical compared to previous bull market corrections when denominated as a percentage of total invested wealth.

Summary and Conclusion

Following 18 months of upward price action post-FTX collapse and three months of sideways trading, the market has experienced its deepest correction of the current cycle. Nonetheless, the drawdown remains favorable compared to historical cycles, suggesting a relatively robust market structure.

The aggressive contraction has put a significant number of Short-Term Holders in severe unrealized loss, exerting pressure on this cohort. However, the magnitude of losses remains subdued relative to the market size. Long-Term Holders have largely avoided taking losses, indicating that mature investors remain profitable despite market turbulence.

Disclaimer: This report does not provide any investment advice. All data is provided for informational and educational purposes only. No investment decision should be based on the information provided here, and you are solely responsible for your own investment decisions.

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