Bitcoin has experienced its steepest decline in the current cycle, trading over 26% below its all-time high (ATH), according to onchain analysis firm Glassnode. This contraction has significantly affected short-term holders, with over 2.8 million BTC now below their acquisition price.

Bitcoin Market Faces Significant Drawdown, Glassnode Reports

Despite the notable downturn, Glassnode’s latest analysis highlights that this drawdown remains historically shallow compared to previous cycles. The current market cycle, spanning 2023-24, has exhibited both similarities and differences to past cycles. Following the collapse of FTX, bitcoin enjoyed 18 months of steady appreciation, only to face a correction exceeding 26% from its ATH between May and July 2024.

Glassnode states:

Whilst this is meaningful, this downtrend has been notably shallower than previous cycles, highlighting a relatively robust underlying market structure and compression of volatility as Bitcoin matures as an asset class.

Glassnode’s researchers note a substantial influx of new investors starting in January 2024, spurred by the launch of spot ETFs. However, this demand has plateaued, leading to an overhang as fewer long-term holders take profits and fewer new buyers accumulate BTC. During the recent sell-off, the volume of BTC held by short-term holders below their cost basis surged past 2.8 million, marking the second instance within a year where over 2 million BTC were underwater.

“Whilst financial pressure is elevated amongst Short-Term Holders, the magnitude of losses locked in has remained relatively subdued in comparison to the market size,” the Glassnode report details.

Soure: Glassnode’s Week Onchain #28.

The report further illustrates the ongoing profitability challenge for investors, with the realized profit-to-loss ratio declining to a neutral level typical of bull market corrections. Glassnode’s data shows a sharp increase in realized losses among short-term holders, amounting to approximately $595 million recently, the largest since the 2022 cycle low.

“However, when we denominate these same Short-Term Holder losses as a percentage of total invested wealth (divided by the STH Realized Cap), we can see a dramatically different picture,” Glassnode’s researchers explain.

The onchain report adds:

On a relative basis, the losses locked in by this cohort remain fairly typical compared to previous bull market corrections.

In summary, the report details that while the current market cycle has endured significant drawdowns, the overall impact remains subdued in comparison to historical cycles. The market shows a relatively robust structure with mature investors maintaining profitability despite the downturn. Glassnode’s insights suggest that while the immediate financial pressure on short-term holders is considerable, the long-term outlook remains cautiously optimistic, contingent on renewed demand to stabilize prices.

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