Glassnode Report Reveals Why The Bitcoin Price Dropped Below $50,000
August 21 2024 - 4:30PM
NEWSBTC
Bitcoin crashed below $50,000 on August 5 in a sudden dip that saw
many positions liquidated in the crypto market. This sudden dip,
which cascaded into other cryptocurrencies, took the market by
surprise. As such, Bitcoin fell to its lowest price in six months,
and many other altcoins followed suit. Although Bitcoin has since
recovered by 20% and now finds itself trading around just below
$60,000, many short-term holders are still sitting in unrealized
losses. A recent report from Glassnode, a leading blockchain
analysis firm, sheds light on the factors contributing to this
abrupt market downturn. The report suggests that the crash was
largely driven by an overreaction from short-term holders, who were
quick to liquidate their positions in the face of the initial
decline. Bitcoin Short-Term Holders Quick To Capitulate Short-term
holders are typically defined as those investors who hold onto
their cryptocurrency assets for a relatively brief period, often
around a month or so. As such, they are quickly prone to
capitulating during periods of price corrections. This trend has
particularly been evident in the latest Bitcoin price
correction/consolidation, which has lasted far longer than many
investors expected. Related Reading: Dogecoin Faces Supply
Squeeze: What This Means For Price According to Glassnode’s most
recent on-chain report, a key metric known as the STH-MVRV (Market
Value to Realized Value) ratio has fallen below the critical
equilibrium value of 1.0. When the STH-MVRV ratio dips below
1.0, it suggests that, on average, new investors are holding their
Bitcoin at a loss rather than a profit. These unrealized losses,
often referred to as paper losses, occur when the market value of
an asset is lower than the price at which it was acquired, but the
asset has not yet been sold. This is different from realized
losses, which arise from completed trades. While periods of brief
unrealized loss are common during bull markets, they tend to put
selling pressure on the price of Bitcoin. This is because sustained
periods of STH-MVRV trading below 1.0 often lead to a higher
likelihood of panic and capitulation among short-term holders.
Notably, this phenomenon contributed to the Bitcoin crash earlier
in the month. Related Reading: Cardano Kicked Out Of Top 10 Crypto
By Market Cap, What’s Going On? Furthermore, Glassnode’s report
reveals this correlation and selling pressure might already be
taking place, with the STH-SOPR (Spent Output Profit Ratio) also
trading below 1.0. The STH-SOPR ratio measures the profitability of
spent outputs, indicating whether assets are being sold at a profit
or loss. What this essentially means is that many short-term
investors are more taking realized losses than profit. This follows
the claim that many short-term holders have been overreacting to
the price corrections. While short-term holders have carried
most of the losses across the recent downturn, long-term holders
remain strong. At the time of writing, Bitcoin is trading at
$59,540 and is down by 2.15% in the past 24 hours. Featured
image created with Dall.E, chart from Tradingview.com
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