The Bitcoin market continues to experience downward pressure, despite the average Bitcoin (BTC) investor remaining profitable, according to Glassnode’s latest report. However, the Short-Term Holder (STH) cohort is heavily underwater on their holdings, making them a source of risk in the current market environment.

Market Overview

Glassnode’s analysis indicates that the average BTC investor is holding relatively small unrealized losses compared to previous cycles, suggesting a relatively favorable position overall. However, the report highlights significant concerns for short-term holders, who are experiencing elevated unrealized losses.

Over the last three months, the Bitcoin market has faced increased downward pressure, causing the largest drawdown of the current cycle. Despite this, from a macro perspective, the spot price is trading around 22% below its all-time high (ATH), which remains a relatively shallow drawdown compared to historical bull market regimes.

Current Market Pressures

With increased downward price pressure, assessing the unrealized loss held by investors is crucial for evaluating the financial stress they are experiencing. According to Glassnode, total unrealized losses amount to just 2.9% of the Bitcoin market cap, which is historically low. This suggests that the aggregate investor remains relatively profitable, even with continued price declines.

Glassnode also notes that the ratio between total Unrealized Profit and Unrealized Loss shows profits are six times larger than losses. This ratio underscores the surprisingly robust financial position of the average investor, with only around 20% of trading days seeing this ratio above the current value.

Short-Term Holder Concerns

The STH cohort, representing new demand in the market, appears to be shouldering the majority of the market pressure. Their unrealized losses dominate overall and have consistently increased over recent months. However, even for this cohort, the magnitude of their unrealized losses relative to the market cap is not yet in full-scale bear market territory, more closely resembling the choppy 2019 period.

Glassnode’s analysis shows that the STH MVRV Ratio has collapsed below the breakeven value of 1.0, indicating that the average new investor is holding an unrealized loss. Until the spot price reclaims the STH cost basis of $62.4k, further market weakness is expected.

Investor Reactions

Assessing unrealized losses provides crucial insight into the pressure that market investors are experiencing. Glassnode supplements this analysis with the volumes of profit and loss realized to better understand how these investors are responding to this pressure. Realized profit has seen a drastic decline following the $73k ATH, indicating that a majority of coins spent since then have locked in increasingly small profit volumes over time.

Conversely, realized losses are elevated and trending towards higher levels as the market downtrend progresses. Although not yet at the extreme levels seen during the mid-2021 sell-off or the 2022 bear market, the gradual increase indicates some fear creeping into investor behavior patterns.

Navigating the Cycle

During downtrends, patience and HODLing become dominant market dynamics. A substantial amount of Long-Term Holder (LTH) coins were spent for profit during the March ATH, creating a net overhang of supply. More recently, LTHs have slowed down their profit-taking, with supply accumulated during the ATH run-up gradually maturing into LTH status. However, historical examples of increasing LTH supply usually occur during the transition towards a bear market.

Glassnode’s report concludes that while Bitcoin is residing only 22% below its ATH, a considerably shallower drawdown than prior cycles, the average BTC investor remains largely profitable. Nevertheless, the STH cohort continues to carry elevated unrealized losses, indicating they are the primary cohort at risk and the expected source of sell-side pressure in the event of a downturn.

Profit and loss-taking activities remain light, suggesting a saturation of the current range. Critical metrics such as the Sell-Side Risk Ratio allude to a potential for heightened volatility in the near future.

For more detailed insights, visit the [Glassnode Insights – On-Chain Market Intelligence](https://insights.glassnode.com/the-week-onchain-week-36-2024/).

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