On August 5, the Bitcoin price crashed by more than 15%, hitting a six-month low of $49,050. Glassnode analysts believe this correction was an “overreaction” by short-term holders.
According to a report released by Glassnode analysts on August 20, with the Bitcoin (BTC) price hovering around $58,800 on August 20, the average short-term holder (STH), or those who have held Bitcoin for less than 155 days, is now holding the coin in an “unrealized loss” position.
This group was made up primarily of people who bought Bitcoin during the 2024 rally, which saw Bitcoin hit an all-time high of $73,835 on March 14.
According to the report, “short-term holders suffered the biggest losses during the recent downturn.”
Glassnode noted that the Market Value to Realized Value (MVRV) ratio for STH has fallen below its equilibrium value of 1.0 in recent weeks, suggesting that Bitcoin investors have “absorbed most of the losses” since the recent market correction.
The report warned that while this is “common in bull markets,” if STH-MVRV remains below equilibrium for an extended period of time, it could cause panic among investors and lead to a severe bear market.
“If the STH-MVRV continues to trade below 1.0, investor panic is likely to increase, and a more severe bearish market trend is likely to follow.”
Bitcoin STH-MVRV – 30 days. Source: Glassnode
Glassnode argues that the recent price drop is an overreaction by new investors, as their BTC holdings had relatively high unrealized losses.
Glassnode analysts compared the STH cost baseline used and the STH cost baseline used as shown in the chart below to determine the difference between the two metrics. This provided insight into the magnitude of the potential overreaction.
They found that there was only “a slight deviation” between the cost-to-expenditure baseline and the cost-to-hold baseline for all modifications throughout the current cycle.
“This could lead to an argument that the market may have overreacted a bit as it sold off below $50,000.”
Bitcoin New Investors’ Confidence in the Trend. Source: Glassnode
relevant: Bitcoin whales now only add 1% of their BTC holdings each month.
As long as Bitcoin remains below $59,000 based on its 200-day exponential moving average (EMA) for the next few weeks, all short-term Bitcoin holders will see losses.
Bitcoin is still struggling despite coming very close to reclaiming the 200-day EMA.
According to data from Cointelegraph Markets Pro and TradingView, the Bitcoin price broke above the 200-day EMA on August 20, but then declined and held above it before falling back to $58,700.
BTC/USD daily chart. Source: TradingView
Cointelegraph reported that this phenomenon could be due to a number of reasons, including continued outflows from spot Bitcoin ETFs, declining profitability for Bitcoin miners, and concerns about negative macroeconomic events.
The US weekly jobless claims data for August and the flash purchasing managers index (PMI) are due out this Friday, August 23rd. If both print lower results, it could help Bitcoin move higher and reclaim the 200-day EMA.
This article does not contain any investment advice or recommendations. All investment and trading moves involve risk, and readers should conduct their own research when making decisions.