Key Takeaways:
- Bitfinex report shows Bitcoin has retraced nearly 30% from its all-time high of $109,590, marking its second-largest correction of this bull cycle.
- ETF outflows and short-term holder sell-offs are contributing to continued price weakness.
- Market sentiment remains cautious, with potential for further downside if institutional demand does not pick up.
Bitcoin plunged steeply, declining from its $109,590 peak on Jan. 20 to $77,041 in the March 9-15 period. In its latest report, Bitfinex stated that this 30% fall is the second-deepest correction so far in the ongoing bull cycle.
Historically, drawdowns have been common in bull cycles, generally bottoms before a further rise. That is not, however, the situation with current market dynamics.
The involvement of institutional investors through spot Bitcoin ETFs has led to less deep retracements over the last few months, usually in the 18-22% area. In this situation, the 30% decline indicates greater selling pressure.
The downward trend has been driven largely by profit-taking on the side of short-term holders. The majority of those who acquired Bitcoin in the recent rally are now offloading it at a loss.
In addition, the smaller investors who hold less than 1 BTC, or “shrimps,” are also offloading, adding to the bearish momentum. The shift in mood is a departure from euphoria that is common following an all-time high to a conservative trading environment.
The shifting mood in the markets suggests a turning point away from the euphoria that is usually associated with an all-time high and towards a less exuberant trading atmosphere.
Bitcoin Drops as Spot ETF Outflows Hit $921M in a Week
One of the major reasons why Bitcoin has been declining is the persistent outflows in spot Bitcoin ETFs. Over the past week, the funds experienced $921.4 million worth of net withdrawals, indicating that institutional buyers have not been interested in taking on the sell-side pressure.
This lack of demand has allowed short-term holders to dictate price action, which has increased market volatility.
The average cost of newer investors has also started decreasing. Investors who came into the market in the past week to one month back now own Bitcoin at a cheaper average than those who bought between one to three months back.
This indicates declining bullish momentum and decreasing confidence on the part of newer entrants. In strong uptrends, new money usually comes in at higher levels, driving the cost basis higher.
The recent reversal is a sign that buyers are becoming progressively wary, reinforcing the bearish sentiment.
Short-Term Holders Drive Selling Pressure
One of the most important metrics showing the ongoing sell-off is the Short-Term Holder Spent Output Profit Ratio (STH-SOPR), which is a gauge of profit or loss by the short-term holders when they sell.
Since Bitcoin’s fall below $95,000, STH-SOPR’s 30-day moving average has been consistently below one, confirming that the short-term holders have been selling at a loss.
Such conditions usually indicate capitulation, when weak hands exit the market, perhaps opening the door to a trend reversal.
Yet, if the pressure to sell continues, Bitcoin could fall into a period of protracted consolidation. Longer-term holders could view it as an opportunity to buy, but without new institutional demand, the recovery could be less quick.
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