According to Glassnode, the Bitcoin network has seen a significant decline in capital inflows over the past six months, and the Bitcoin (BTC) price has been in a “long-term consolidation phase.”
This prolonged consolidation, which has continued since the 2024 Bitcoin halving, has caused the market slope for the short-term holders (STH) group, i.e. those who have held BTC for less than 155 days, to turn negative, while the realized price slope remains positive but trending down.
“This suggests that the spot price decline was more aggressive than the intensity of capital outflows,” Glassnode analysts wrote in a Sept. 25 report.
Bitcoin 155-day market and realized delta gradient. Source: Glassnode
Such a prolonged consolidation has not been seen since the 2019-2020 period, when a strong rally continued in the second quarter of 2019.
A deeper analysis of this price slump shows that STH, especially those who have held Bitcoin for a period of 1 week to 3 months, are playing a significant role.
Glassnode analysts analyzed the market value to realized value (MVRV) ratio of the STH sub-cohort and found that new investors are feeling financial pressure from June 2024 onwards, taking on increasingly larger unrealized losses. However, this pressure is slightly less than what was experienced during the COVID crash in March 2020.
“Despite the large number of new investors being underwater on their holdings, the magnitude of the unrealized losses is significantly less severe than the sell-off in mid-2021 and the COVID-19 crash in March 2020.” Bitcoin MVRV ratio by age. Source: Glassnod
The report also notes that as markets enter a prolonged contractionary phase, younger investors’ cost bases will drive down spot prices, which could be characterized as a “net capital outflow from the Bitcoin ecosystem.”
The report explains that the cost basis of investors who held Bitcoin for one week to one month (1w-1m), often categorized as “fast-trackers,” has fallen compared to the cost basis of investors who held Bitcoin for one month to three months (1m-3m), often categorized as “slow-trackers.” This suggests that the market is experiencing net outflows.
According to Glassnode, the indicator showed that “a sustainable market reversal may be in the early stages of developing positive momentum.”
Bitcoin Capital Flows by STH Sub-Cohort. Source: Glassnode
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However, despite experiencing a period of regional price consolidation and capital outflows, Glassnode analysts say new investor confidence in the market remains “very robust.”
To assess how STH reacts to rapid market changes, the market intelligence agency analyzed the difference between the cost basis of new investors making spending (orange line in the chart below) and the cost basis of all new investors (blue line).
They found that the size of STH’s locked losses was relatively low compared to the cost basis of its holdings, given the high unrealized losses seen in recent months, and therefore did not overreact by realizing losses, showing “relatively higher confidence in the market than in previous ‘downtrends’.”
Bitcoin STH Investors’ Confidence in the Trend. Source: Glassnode
Glassnode noted that Bitcoin’s recent recovery has kept the price above $63,900 in STH terms, increasing optimism for further upside.
“This rally could make technical sense if the price remains above the 200-day moving average of $63.9k.” This article does not contain any investment advice or recommendations. All investment and trading moves involve risk, and readers should do their own research when making decisions.