Bitcoin Investors Stay Resilient, but Attention to These Details is Necessary

• A picture is presenting on-chain data showing that the BTC spot supply with a cost base exceeding or near the current price is “predominantly above” after last week’s Bitcoin price drop.
• Long-Term Holders (LTHs) have shown significant resistance during this volatile period. Their interaction with exchanges remained largely unchanged, and the total balance of LTHs indicates a new all-time high this week.
• The fluctuating dynamics between profits and losses in the market can be better understood with the Profit or Loss Dominance metric. As the 2023 rally continues, a noticeable change was observed in the position of the Short-Term Holder cohort.

Bitcoin investors insist on staying resilient, but recent reports highlight the situation of short-term and long-term investors.

Long-Term Holders in Bitcoin Remain Cautious

After last week’s Bitcoin price drop, a picture is presenting on-chain data showing that the BTC spot supply with a cost base exceeding or near the current price is “predominantly above.” Glassnode’s latest information sheds light on the current market dynamics, where a significant portion of BTC is held with a cost base near or above the current price. Checkmate, Glassnode’s lead analyst, said:

“Here, 12.8% (2.48M BTC) of the supply fell into unrealized losses this week, setting a lower level for this metric. This indicates that the ‘overhang’ can also be a factor in the spot markets.”

In particular, Long-Term Holders (LTHs) have shown significant resistance during this volatile period. Their interaction with exchanges remained largely unchanged, and the total balance of LTHs indicates a new all-time high this week. On the other hand, the behavior of Short-Term Holders (STHs) is particularly noteworthy.

Checkmate says, “We can see that STH supply has remained at multi-year lows because LTH supply is at ATH levels.” The data further emphasizes this: out of the 2.56M BTC held by STHs, only 300k BTC (11.7%) remains profitable, meaning 88.3% is in a loss position. This needs to be corrected quickly, as it would contribute to the bear market, according to Checkmate.

Historical data shows sharp increases in STH supply losses during periods referred to as “overhang markets” – such as the events in May 2021, December 2021, and again observed last week.

Implications for Bitcoin Price

The fluctuating dynamics between profits and losses in the market can be better understood with the Profit or Loss Dominance metric. As the 2023 rally continues, a noticeable change was observed in the position of the Short-Term Holder cohort: “This week, we saw the largest loss dominance data since the $19.8k sell-off in March. This indicates that the STH cohort is largely underwater and increasingly price-sensitive,” Checkmate adds.

An interesting discovery comes from an experimental tool designed by Glassnode to identify market turning points. This carefully designed tool maps investors’ macro trends and the prevalence of profitability and loss (and vice versa), providing a nuanced “Momentum indicator.”

According to Checkmate, “After seeing a decrease in profit dominance for several months, we have seen a significant increase in loss momentum and dominance.” It is important to note that recorded misleading positives have occurred – as in the March 2023 correction – but sustained declines have historically been precursors to sharper downward trends.

As a result, the Bitcoin price drop on August 17 remains the most significant single-day drop of the year. The sell-off primarily occurred due to leverage clean-up in the futures market and, therefore, is primarily based on short-term positioning and market structure.

However, the prevailing sentiment is often a cautious one, mostly due to factors such as falling below longer-term moving averages, which can affect market sensitivity.

While Long-Term Holders remain steadfast, the focus is on Short-Term Holders. With 88.3% (equivalent to 2.26M BTC) of their supply in unrealized losses and considering the increasing realized losses and violation of key technical support levels, the responsibility to defend their stance lies with the bulls. Checkmate concludes:

“Undoubtedly, there is potential for further downward momentum, but most of the damage comes from positioning and technicals. The bull case continues with the fact that not much has changed outside of the price, and the risk/reward ratio is still upward.”