Nearly All Short-Term Bitcoin Owners Are Underwater, Making Rallies Harder

"The real problem is the current fragile market set-up for BTC, because short-term holders are underwater in both price and narrative," one observer said.

AccessTimeIconAug 23, 2023 at 6:12 a.m. UTC
Updated Aug 23, 2023 at 6:40 p.m. UTC
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Bitcoin (BTC) investors who plan to own the cryptocurrency for the shortest amounts of time – people who tend to be sensitive to quick moves in markets – are largely underwater following the recent price plunge, according to on-chain data.

This is probably a headwind that could suppress rallies.

The leading cryptocurrency by market value fell over 10% to $26,200 last week, its weekly worst performance since FTX fell apart in November.

With the sell-off, 88.3% of the supply controlled by short-term holders, or entities with wallets that do not hold coins for more than 155 days, is now in an unprofitable position with unrealized losses, according to data tracked by Glassnode.

In other words, of the 2.56 million bitcoin ($66.5 billion) held by short-term holders, around 2.26 million bitcoin have an acquisition cost higher than the going market rate.

This tends to happen following "'top heavy markets' such as May 2021, Dec 2021, and again this week," Glassnode's weekly newsletter published on Monday said.

The proportion of supply controlled by short-term holders, which is held at an unrealised loss has surged. (Glassnode)
The proportion of supply controlled by short-term holders, which is held at an unrealised loss has surged. (Glassnode) (Glassnode)

A top-heavy market is one that is likely to have a tough time chalking out gains – in this case, due to potential liquidation by short-term holders facing losses.

That's already happening. Per Glassnode, more coins held short-term are flowing into exchanges – something known as loss dominance. Investors typically move coins from personal wallets to exchanges when intending to liquidate position or use them as margin in derivatives trading.

"This week, we saw the largest loss dominance reading since the March sell-off to $19,800. This suggests that the [short-term] cohort are both largely underwater on their holdings and increasingly price sensitive," Glassnode noted.

Ilan Solot, co-head of digital assets at Marex Solutions, said the unrealized losses of short-term holders are one of the critical problems for the market right now.

"The real problem is the current fragile market set-up for BTC, because short-term holders are underwater in both price and narrative," Solot said in an email.

"Almost 90% of short-term holders (< 155 days) are suffering unrealized losses, which often correlates with selling pressure," Solot added, explaining that the recent optimism around prospects for U.S. approval of spot bitcoin ETFs has shifted to “still decent odds of approval but delayed" amid rising bond yields and tighter liquidity conditions.

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Edited by Parikshit Mishra and Nick Baker.

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Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.


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