Bitcoin’s once-steady climb hit a major roadblock this week, as the cryptocurrency plummeted below $25,000 in a sharp sell-off that caught many investors off guard. The abrupt downturn, the most significant single-day drop of the year at -7.2% on August 17th, has been attributed to a massive deleveraging event in futures markets. However, a more concerning factor may be the distressing statistic that 88.3% of Short-Term Holders now hold their positions at an unrealized loss.
88.3% of Short-Term Holder Supply In Trouble
According to Glassnode’s Week Onchain Newsletter data, Bitcoin’s recent price action has been anything but predictable. After experiencing a prolonged period of minimal volatility, the market suddenly erupted, shattering long-term moving averages and leaving BTC prices at around $26,100 by week’s end. It represents a significant loss of market support, forcing the bulls to regroup and devise a strategy to regain their footing.
The sell-off also highlighted the vulnerability of Short-Term Holder supply, which historically impacts market trends. Of particular concern is the fact that 88.3% of these holders are currently experiencing unrealized losses. This disturbing trend has raised red flags as the cryptocurrency market faces psychological challenges stemming from the breach of key price levels.
In addition to futures markets experiencing a significant deleveraging event similar to past collapses, Bitcoin’s options market has undergone a drastic repricing of implied volatility. Implied volatility, at all-time lows, surged as the sell-off unfolded, catching options traders off guard. Notably, the shift in volatility expectations did not lead to massive changes in open interest for options, suggesting that the deleveraging was not as pronounced in this market segment.
Furthermore, the spot market displayed signs of being “top-heavy,” with a substantial portion of supply having a cost basis at or above the current price. As Bitcoin’s price tumbled, approximately 12.8% of the supply fell into an unrealized loss, indicating that the vulnerability of “top-heavy markets” might have contributed to the sharp decline.
While Long-Term Holders seemed relatively unflustered by the sell-off, the behavior of Short-Term Holders drew attention. These holders, who are more reactive to market volatility, displayed an increased dominance of losses compared to profits. This development and a decline in profit dominance have historically signaled potential downtrends.
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