Chief analyst James Check (Checkmatey) of the blockchain data analysis platform Glassnode stated in a post on Wednesday that the current trading price of Bitcoin (BTC) is lower than the average purchase price of short-term holders, which could lead to “panic” caused by unrealized losses.
Bitcoin has dropped from around $64,000 to around $57,000 in the past two days, a decrease of over 10%. This is significant for short-term holders of Bitcoin (holding for less than 155 days) because their average purchase price is around $59,600.
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James Check
James Check believes that the importance of the cost basis for short-term holders is because it represents the average cost basis of investors who recently bought Bitcoin. “According to statistics, these recent buyers are most likely to experience panic.” At this particular price point, there are too many coins and holders in unrealized losses, which “could be a disruptive factor for bullish sentiment.”
According to data from Checkonchain, as of May 1st, the short-term holder group collectively holds approximately 4.95 million Bitcoins, of which about 3.3 million are in unrealized losses. However, James Check also added that attention should be paid to whether the price returns above the cost basis of short-term holders.
Another Bitcoin on-chain analyst, On-Chain College, believes that the cost basis of short-term holders usually acts as support during bull markets and becomes resistance during bear markets. He explained on the X platform that this is a form of market psychology, where short-term investors double down on their cost basis and buy when they anticipate higher returns in the future. Conversely, when these groups anticipate further losses during bear markets, they tend to sell when the price returns to the cost basis.
On-Chain College believes that breaking this support level is a crucial development, but it does not mean that the bull market has ended. He is now expecting the first retest of this price level.
On-Chain College states that a rapid breakthrough of the $59,600 price level for Bitcoin will be bullish, similar to the situation in June 2023. However, if the price continues to fluctuate below this level and then returns above the cost basis of short-term holders, this trend can also be seen as favorable for the bull market, similar to the situation from August to October 2023.
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On-Chain College
However, On-Chain College also mentioned a bearish scenario, which is a trend similar to the one in December 2021 when Bitcoin fell below $54,000. This was also the beginning of the previous bear market. But he believes that the possibility of the two bullish scenarios he mentioned is greater now.
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