The Week Onchain Newsletter

Bulls Under Pressure

Following several months of sideways price action,
Bitcoin has experienced its deepest correction
since late 2022, trading below the 200DMA, and
putting a significant number of Short-Term Holders
into an unrealized loss.

CryptoVizArt, UkuriaOC,
Glassnode
Jul 9, 2024 • 7 min read

Executive Summary:

Bitcoin has recorded its deepest

drawdown for the current cycle, trading
more than -26% below the ATH. Despite
this, the drawdown remains historically
shallow relative to past cycles.

This price contraction has put a

significant volume of Short-Term
Holder Supply into an unrealized loss,
with over 2.8M BTC now underwater
based on their on-chain acquisition
price.

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.

View all charts in this edition in The

Week On-chain Dashboard.

Price Performance

The 2023-24 Bitcoin cycle has been both similar

and different to previous cycles. The market
experienced around 18 months of steady price
appreciation after the collapse of FTX, followed
by three months of range-bound price action
after the $73k ETF high. Between May and July,
the market experienced its deepest cycle
correction, recording a drawdown exceeding
-26% from the ATH.

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.

Live Workbench

If we assess price performance relative to each

cycle low, the 2023-24 market has behaved
eerily similar to the last two cycles (2018-21 and
2015-17). The reason for Bitcoin following such a
similar path is a regular topic of debate, but it
continues to provide a valuable framework for
analysts to think about cycle structure and
duration.

Live Workbench

However, if we look at performance indexed to

the date of the Bitcoin halving, we can see that
the current cycle is one of the worst performing.
This is despite the market breaching to a new
cyclical ATH prior to the halving event in April,
which was the first time this has happened.

Epoch 2: +117%

Epoch 3: -7%

Epoch 4: +30%

Epoch 5: -13%

Live Workbench

On a daily basis, we can evaluate the number of

daily drawdowns during an uptrend which
exceed the 1 Standard Deviation threshold to the
downside. This helps us assess the number of
meaningful sell-off events that investors
experienced throughout the bull market uptrend.

2011-13: 19 Events

2015-18: 27 Events

2018-21: 26 Events

Current Cycle 2023-24: 6 Events (to

date)

The current cycle has recorded 6 daily

drawdowns more than 1 standard deviation
below the long term mean. This would suggest
that the current cycle has either been notably
shorter and less volatile than previous cycles, or
perhaps there is more fuel in the investor tank.

Live Workbench

New Investors Underwater

Assessing the volume of supply held by Short-

Term Holders, we can see substantial growth
from January 2024 onward. This accompanied
explosive upwards price action in response to the
spot ETFs going live, and reflected a strong
inflow of new demand.

However, this demand profile has reached a

plateau in growth over recent months,
suggesting an equilibrium had formed between
supply and demand in Q2-2024. This has since
given way to a supply overhang, as fewer Long-
Term Holders take profits, and fewer new buyers
step in to accumulate.

Live Chart

During sustained bull markets, local bottoms are

commonly established after the volume of Short-
Term Holder supply held in loss saturates
around 1M to 2M BTC. In more severe cases, this
supply in loss can peak to between 2M and 3M
BTC.

We can see an example of this during the recent

sell-off down to the 53k price level, which
pushed the volume of coins held below their cost
basis to over 2.8M BTC. This is the second time
this has occurred in the last 12-months, with
August 2023 being the other example where over
2M BTC owned by new investors were held in an
unrealized loss.

Live Workbench

We can assess he intensity of these periods by

counting the number days where more than 2M
Short-Term Holder coins were underwater for at
least a 90 day period. By this metric, this
indicator has actively flagged for 20 days so far.

If we make a comparison with the market

conditions seen in Q2-Q3 2021, a much more
significant Short-Term Holders experienced a
much more significant duration of 70
consecutive days in acute financial stress. That
period of time was severe enough to break
investor sentiment, and gave way to the
destructive 2022 bear market. By comparison,
this cycle has been relatively forging for the time
being.

Live Workbench

A Halt On Profitability

With a contraction in spot prices underway, the

ratio between investor Realized Profit and
Realized Loss has declined in tandem. This
indicator has now declined into the 0.50 to 0.75
range, which is a more neutral level seen during
bull markets corrections.

We can also see a similar pattern of sharp

fluctuations in this metric throughout the 2019
to 2022 cycle, which could be considered a
reflection of inherent instability and investor
uncertainty.

Live Workbench

Zooming into Short-Term Holder losses

specifically, we can see a total realized loss of ~
$595m was locked in by this cohort this week.
This is the largest loss taking event since the
2022 cycle low.

Furthermore, only 52 out of 5655 trading days (<

1%) have recorded a larger daily loss value,
highlighting the severity of this correction in
dollar terms.

Live Workbench

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

In the chart below, we have highlighted (blue)

periods of time where the both percent of Short-
Term Supply held in Loss, and the magnitude of
losses locked have moved more than 1 standard
deviation from the mean.

Live Workbench

Looking at losses locked in by both Long-Term,

and Short-Term Holders, we note that the loss
taking events this week account for less than
36% of the total capital flows across the Bitcoin
network.

Major capitulation events, such as Sep 2019,

March 2020, and the sell-off in May 2021, saw
losses account for more than 60% of capital
flows over a period of several weeks, with a
meaningful contribution from both cohorts.

Therefore, it could be argued that there are more

similarities between the prevailing market
contraction, and the Q1-2021 topping formation,
more so than severe capitulation events.
Nevertheless, the onus still falls towards the
demand side to arrest the negative price
momentum, else the profitability of investors
will continue to deteriorate.

Live Chart

Summary and Conclusion

Following 18 months of up-only price action

after the FTX implosion, and 3 months of
apathetic sideways trading, the market has
endured its deepest correction of the cycle.
Nevertheless, drawdowns across our current
cycle remains favourable when compared to
historical cycles suggesting a relatively robust
underlying market structure.

The aggressive contraction has plunged a

significant amount of Short-Term Holders into a
position of severe unrealized loss, placing a large
degree of pressure upon the cohort. However,
the magnitude of losses locked in has remained
relatively subdued in comparison to the market
size. Alongside this, the lack of Long-Term
Holder participation in loss taking suggests
mature investors remain profitable, despite the
ensuing market hysteria.

Disclaimer: This report does not provide any

investment advice. All data is provided for
information and educational purposes only. No
investment decision shall be based on the
information provided here and you are solely
responsible for your own investment decisions.

Exchange balances presented are derived from

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users to exercise caution and discretion when
utilizing these metrics. Glassnode shall not be
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