On August 5, bitcoin fell below $50,000 in a flash crash that led to the liquidation of many positions in the cryptocurrency market. This sudden drop, which spread to other cryptocurrencies, took the market by surprise. As such, bitcoin fell to its lowest price in six months, and many other altcoins followed suit. Although bitcoin Has since recovered by 20% and Now it is trading At just under $60,000, many short-term holders are still sitting on unrealized losses.
A recent report Glassnode, a leading blockchain analytics company, sheds light on the factors contributing to this. abrupt market fallThe report suggests the fall was largely driven by an overreaction by short-term bondholders, who rushed to liquidate their positions in the face of the initial drop.
Short-term bitcoin holders are quick to capitulate
Short-term investors are typically those who hold their cryptocurrency assets for a relatively short period of time, often around a month. As such, they are prone to capitulate quickly during periods of price correction. This tendency has been particularly evident in the latest bitcoin price correction/consolidation, which has lasted much longer than many investors expected.
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According to Glassnode’s latest blockchain report, a key metric known as the STH-MVRV (market value to realized value) ratio has fallen below the critical equilibrium value of 1.0. When the STH-MVRV ratio falls below 1.0, it suggests that, on average, new investors are holding onto their bitcoins at a loss rather than a profit. These unrealized losses, often referred to as paper losses, occur when the market value of an asset is lower than the price at which it was acquired, but the asset has not yet been sold. This is different from realized losses, which arise from completed transactions.
While periods of short unrealized losses are common during bull markets, they tend to put selling pressure on the price of bitcoin. This is because extended periods of STH-MVRV trading below 1.0 often lead to a higher likelihood of panic and capitulation among short-term holders. Notably, this phenomenon contributed to bitcoin’s crash earlier in the month.
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Furthermore, Glassnode’s report reveals this correlation and selling pressure. It could already be happeningwith the STH-SOPR (Spent Output Profit Ratio) also trading below 1.0. The STH-SOPR ratio measures the profitability of output spent, indicating whether assets are being sold at a profit or a loss. What this essentially means is that many short-term investors are taking more realized losses than gains. This follows the claim that many short-term holders have been overreacting to price corrections.
While short-term holders They have taken most of it Despite the losses suffered during the recent downturn, long-term holders remain strong. At the time of writing, bitcoin is trading at $59,540 and is down 2.15% over the past 24 hours.
Featured image created with Dall.E, chart from Tradingview.com
