jakiro
Author: CryptoVizArt, UkuriaOC, Glassnode; Compiled by: Deng Tong, Bitchain Vision
summary
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Bitcoin hit its biggest drop in the current cycle, trading at more than 26% lower than its all-time high.Nevertheless, the decline remains at an all-time low compared to the past cycle.
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The price decline has caused a large number of short-term holders to fall into unrealized losses, with more than 2.8 million BTC currently in a loss-making state according to their on-chain acquisition prices.
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Although short-term holders have increased financial pressure, the amount of locked losses is still relatively small compared to market size.
Price performance
The Bitcoin cycle from 2023 to 2024 is both similar and different from the previous cycles.The market experienced about 18 months of steady price gains after the FTX crash, followed by a three-month range volatility following the $73,000 ETF high.The market experienced the deepest cyclical adjustment from May to July, down more than 26% from ATH.
Although this makes sense, this downward trend is significantly shallower than the previous cycle, highlighting that as Bitcoin matures as an asset class, the underlying market structure is relatively stable and volatility has been compressed.
If we evaluate price performance relative to each cycle low, the market performance in 2023-24 is surprisingly similar to the previous two cycles (2018-21 and 2015-17).The reason Bitcoin follows such a similar path is a topic of frequent debate, but it continues to provide an valuable framework for analysts to think about cycle structure and duration.
However, if we measure Bitcoin’s performance using the halving date as a benchmark, we will findThe current cycle is one of the worst performing cycles.This is the first time this has happened, although the market broke through new cyclical highs ahead of the April halving event.
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Epoch 2: +117% (red)
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Epoch 3: -7% (blue)
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Epoch 4: +30% (green)
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Epoch 5: -13% (Gray)
We can evaluate the number of times a daily decline in an uptrend exceeds 1 standard deviation threshold by day.This helps us assess the number of major sell-off events investors have experienced throughout the bull market uptrend.
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2011-13: 19 events;
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2015-18: 27 events;
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2018-21: 26 events;
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Current Cycle 2023-24: 6 Events (so far).
The current cycle has recorded a decline of more than 1 standard deviation below the long-term average for 6 next-days.This suggests that the current cycle is either significantly shorter and less volatile than the previous cycle, or investors have more fuel.
New investors are in trouble
Evaluating the supply held by short-term holders, we can see a significant increase starting from January 2024.This was accompanied by an explosive price increase in spot ETFs after they went online and reflected a strong inflow of new demand.
However, this demand situation has reached a platform period of growth in recent months, indicatingA balance has been formed between supply and demand in the second quarter of 2024.Since then, the oversupply situation has given way to oversupply due to the decrease in profitable long-term holders and the decrease in the number of new buyers’ entry increases.
In a sustained bull market, a local bottom is usually formed when short-term holders hold a loss supply of about 1 million to 2 million BTC.In more severe cases, loss-making supply could peak between 2 million and 3 million BTC.
We can see an example in the recent sell-off, when the price fell to around $53,000, causing holders of more than 2.8 million BTC to be below their holding costs.This is the second time this has happened in the past 12 months, and August 2023 is another example of new investors holding more than 2 million BTC in an unrealized loss.
We can assess the intensity of these periods by calculating the number of days underwater for more than 2 million short-term holders tokens in at least 90 days.By this indicator, the indicator has been active for 20 days so far.
If we compare to the market conditions in the second to third quarter of 2021, short-term holders have experienced longer periods of severe financial pressure for 70 consecutive days.That time was enough to break investor sentiment, second only to the destructive 2022 bear market.In contrast, this cycle is still in progress at present.
Profit stagnation
As spot prices continue to fall, the ratio between investors’ real profits and actual losses also declines.The indicator has now dropped to the range of 0.50 to 0.75, which is a relatively neutral level during the bull market adjustment period.
We can also see that the indicator also showed a similar pattern of drastic fluctuations throughout the cycle from 2019 to 2022, which can be seen as a reflection of inherent instability and investor uncertainty.
Specifically looking at short-term holders’ losses, we can see that this group locked in about $595 million in actual losses this week.This is the biggest loss event since the 2022 cycle lows.
also,Out of the 5655 trading days, only 52 trading days (< 1%) recorded a larger daily loss, highlighting the severity of this adjustment in USD.
However, when we take the losses of these short-term holders as a percentage of the total investment wealth (divided by the STH realized market capitalization), we can see a very different picture.Relatively speaking, compared with the previous bull market adjustment, the losses locked by this group of people are still quite typical.
In the figure below, we highlight the (blue) time period where both the percentage of loss held by short-term supply and the magnitude of loss of locked deviate by more than 1 standard deviation from the mean.
Judging from the losses locked by long-term and short-term holders,We noticed that this week’s loss events accounted for less than 36% of the total capital flow of Bitcoin network.
Major selloff events, such as those in September 2019, March 2020 and May 2021, made significant contributions to both groups over a few weeks of losses accounting for more than 60% of capital flows.
Therefore, it can be said thatThere are more similarities between the current market contraction and the top formation in the first quarter of 2021 than the serious sell-off incident.Nevertheless, it is still a responsibility for the demand side to curb negative price momentum, otherwise investors’ profitability will continue to deteriorate.
Summarize
After the FTX crash, the market experienced 18 months of rising and 3 months of sideways trading, and experienced the deepest adjustments in this cycle.despite this,Compared with the historical cycle, the decline in the current cycle is still favorable, indicating that the market infrastructure is relatively stable.
The sharp contraction has put a large number of short-term holders in a situation of serious unrealized losses, which has put a lot of pressure on the group.However, compared with market size, the scale of locked losses remains relatively small.In addition to this, long-term holders rarely participate in losses, which suggestsDespite subsequent market panic, mature investors are profitable.
