A top crypto analytics firm says that Bitcoin (BTC) traders who are currently at a loss may drive the next BTC sell-off.
According to the latest Glassnode analysis, underwater traders are under the most pressure to sell their assets and possibly ignite a bear market.
“As the prevailing downtrend deepens, the probability of a more sustained bear market can also be expected to increase, as recency bias and the magnitude of investor losses weigh on sentiment.
The longer that investors are underwater on their position and the further they fall into an unrealized loss, the more likely those held coins will be spent and sold.”
The market intelligence firm suggests that these underwater investors make up a sizable portion of BTC holders and have the most motivation to sell their assets. This behavior could potentially drive Bitcoin’s price lower.
“A probable cause for this spending behavior is associated with the financial cost and psychological pain of holding an underwater investment…
If the market fails to establish a sustainable uptrend, these users are statistically the most likely to become yet another a source of sell-side pressure, especially if price trades below their cost basis.”
According to Glassnode, short-term holders (STHs) of Bitcoin make up a large portion of both BTC holders and underwater investors alike. The firm points to the Bitcoin Short-Term Holder Net Unrealized Profit and Loss (NUPL) chart as evidence. The crypto intelligence firm says that STHs have been underwater in aggregate since early December and account for about 18% of BTC’s overall market cap.
In conclusion, Glassnode foresees a difficult road ahead for Bitcoin bulls.
“With a total of 4.70M BTC currently underwater, and 54.5% of it held by STHs who are statistically more likely to spend it, the bulls certainly have their work cut out for them.”
Don't Miss a Beat – Subscribe to get email alerts delivered directly to your inboxFeatured Image: Shutterstock/luboffke/Natalia Siiatovskaia