Bitcoin short-term holders ‘over-reaction’ a factor in BTC’s drop below $50K — Glassnode

On Aug. 5, Bitcoin price crashed more than 15% to a six-month low of $49,050. Glassnode analysts believe the correction was an “overreaction” by short-term holders.

With Bitcoin (BTC) price hovering around $58,800 on Aug. 20, the average short-term holder (STH)—those who have held Bitcoin for less than 155 days—is now holding their coins in an “unrealized loss” position, according to an Aug. 20 report published by Glassnode analysts.

This group mainly consisted of those who purchased Bitcoin during the 2024 rally, when it reached its all-time high of $73,835 on March 14.

According to the report, “Short-Term Holders have carried the brunt of the losses during the recent downturn.”

Glassnode noted that the market value to realized value (MVRV) ratio of STHs has dropped below the equilibrium value of 1.0 in recent weeks, suggesting that this cohort of Bitcoin investors “carried the vast majority of the losses” following the recent market correction. 

While this is “common during bull markets,” the report warned that if STH-MVRV stays below the equilibrium value for extended periods, it may cause panic among investors, triggering a severe bear market.

“Sustained periods where STH-MVRV trades below 1.0 can lead to a higher likelihood of investor panic, and precedes a more severe bearish market trend.”

Glassnode argues that the recent price drop was an overreaction by new investors, as their BTC was held at a relatively high unrealized loss. 

Glassnode analysts compared spent STH-cost basis and STH cost basis, as shown on the chart below, to determine the deviation between these two metrics, which provides insight into the magnitude of potential overreactions.

They found “only a slight deviation” between the spent and holding cost basis for all the corrections throughout the current cycle. 

“From this, it could be argued a modest over-reaction may have occurred as the market sold off below $50k.”

Related: Bitcoin whales now add just 1% to their BTC holdings per month

As long as Bitcoin remains below $59,000, embraced by the 200-day exponential moving average (EMA), for the next few weeks, all short-term Bitcoin holders will remain at a loss. 

Despite getting very close, Bitcoin is still struggling to reclaim its 200-day EMA. 

Data from Cointelegraph Markets Pro and TradingView shows that Bitcoin’s price crossed the 200-day EMA on Aug. 20, but fell to hold above it, retracing back toward $58,700.

Cointelegraph reported this might be due to a handful of reasons, including persisting outflows from spot Bitcoin ETF, declining Bitcoin miner profitability and fears of negative macroeconomic events.

The US weekly jobless claims data and flash Purchasing Managers’ Index (PMI)for August are set to be released this Friday, Aug. 23. If both print lower results, it could help propel Bitcoin higher and reclaim the 200-day EMA. 

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.