Bitcoin failed to hold levels above $58,000 Thursday morning, slipping to $56,700 and trading flat on the day.
Per data from CoinGecko, the price of Bitcoin is currently $56,794, up 0.6% in the past 24 hours and down 4.7% on the week.
Even as Bitcoin dropped to a little below 20% under its all time high, a new analysis has revealed a growing growing risk factor in the crypto market—short-term holders who are currently underwater on their investments could potentially trigger significant market volatility if they decide to cut their losses.
Despite the average Bitcoin investor remaining in a profitable position, those who have recently entered the market or acquired Bitcoin in the last six months are facing substantial unrealized losses. This dynamic creates a potentially volatile situation that could impact the broader crypto market.
"The Short-Term Holder cohort remains heavily underwater on their holdings, making them a source of risk for the time being," a report by blockchain intelligence firm Glassnode states. This group's financial stress is evident in key metrics, with their unrealized losses dominating the overall market picture.
The report cautions that this overall stability could be disrupted if short-term holders decide to exit their positions en masse. The $51,000 price level is identified as a critical support that must be maintained to preserve the current market structure.
The analysis reveals that short-term holders' unrealized losses have consistently increased over the past few months. All age bands within this cohort, from those holding for just a day to those holding for up to six months, are currently in the red.
The average cost basis for these investors ranges from $59,000 to $65,200, significantly above the current market price.
This situation is reminiscent of the choppy market conditions seen in 2019, rather than a full-scale bear market, the report’s authors noted. However, it still presents a considerable risk.
"Until the spot price reclaims the STH [Short-Term Holder] cost basis of $62.4k, there is an expectation for further market weakness,” the report stated.
The implications of this stress on short-term holders extend beyond their individual positions. Their potential selling pressure could trigger broader market volatility, especially given the current low levels of overall profit and loss-taking activities.
Interestingly, while short-term holders grapple with losses, long-term investors appear to be in a more stable position.
The report indicates that long-term holders have slowed their profit-taking activities, and coins accumulated during the recent all-time high run-up are gradually maturing into long-term holdings.