Why are Short-Term Holders in Bitcoin Important for the Next Bull Run Season?

• Last week, the leverage reduction incident in Bitcoin futures markets caused Bitcoin to record its most significant single-day sale of the year.
• According to an on-chain data provider, a large percentage of previously profitable BTC experienced a sharp drop last week.
• Glassnode found that the dominance of profit-taking volumes flowing into exchanges has been consistently decreasing since the value of BTC began its upward trend in January.

The analytics firm highlighted the significance of this sharp drop in Bitcoin and examined the situation of short-term holders.

Not Encouraging for Short-Term BTC Investors

Last week, the leverage reduction incident in Bitcoin futures markets caused Bitcoin to record its most significant single-day sale of the year. As investors count their losses, short-term holders may face a pessimistic situation in the future because, as found in a new report by Glassnode, 88.3% of short-term holders are currently in an unrealized loss.

According to an on-chain data provider, a large percentage of previously profitable BTC experienced a sharp drop last week. This indicates that many investors who bought the leading cryptocurrency at high prices have been pushed into losses.

Glassnode attributed this to the “most intense market” phenomenon. This represents a market condition where many investors buy BTC at or near the current price. This means that these investors will be in an unrealized loss situation when the value of Bitcoin decreases.

Taking into account this behavior prevalent among short-term BTC holders, Glassnode stated the following:

“Sharp increases in loss-making STH supply have tended to follow ‘heavier markets’ such as May 2021, December 2021, and this week. Of the 2.56M BTC held by STHs, only 300k BTC (11.7%) are still in profit.”

Declining Profit Dominance in STH Volumes

Additionally, Glassnode evaluated the Profit or Loss Pressure (dominance) of STH volumes flowing into exchanges and found that the dominance of profit-taking volumes has been consistently decreasing since the value of BTC began its upward trend in January.

This is due to BTC holders within the STH cohort continuing to accumulate the cryptocurrency on a “rising cost basis.” Glassnode stated the following:

“We have seen the largest loss dominance reaching 19.8k since the March sell-offs. This indicates that the STH group is largely underwater in their holdings and increasingly sensitive to prices.”

This indicates that the current BTC market is becoming more severe. As STHs continue to buy at the peak, they are more prone to experiencing further losses, which may pose challenges to the growth of BTC’s price.

Glassnode emphasized the importance of closely monitoring the price drop from last week, noting the increasing loss momentum and dominance among short-term BTC holders. When this occurred in May and December 2021, it was followed by “more severe downward trends” in BTC’s value.