The Bitcoin market realized on-chain losses for the first time in over two weeks – what this means for the BTC price

Bitcoin on a computer. Source: Adobe

The ratio of all bitcoins moved at a profit and loss fell below 1 on Thursday, February 9, for the first time in more than two weeks, according to data from crypto analytics firm Glassnode. The so-called bitcoin realized profit/loss ratio fell to 0.9189 as the price of bitcoin tumbled to a fresh near three-week low below $22,000 amid concerns over 1) a crackdown by US regulators, which is looming for the time being focused on US-based crypto staking service providers, but could soon spread to other parts of the industry and 2) concerns that the Fed could hike rates more than expected this year.

That means the bitcoin market took a larger proportion of USD-denominated losses than gains on Thursday. Before Thursday’s one-day 5% drop, bitcoin had already pulled back 5% from its earlier monthly highs of $24,000, but the realized gain-to-loss ratio had remained positive. This indicated that the downtrend was likely the result of profit-taking by those who bought earlier in the year before/during Bitcoin’s big surge.

However, the fact that the realized profit-to-loss ratio turned negative on Thursday suggests that more of the selling pressure was likely due to traders who had been long for the past few weeks being stopped out. Future position liquidation data from crypto derivatives analytics firm Coinglass paints a similar picture. Bitcoin long liquidations hit the highest level in over three months on Thursday at $64.6 million.

What’s next for BTC?

Towards the end of the week, bitcoin price is now consolidating just above the key $21,500 resistance and support area, and traders are wondering if all short-term “weak” investors have been wiped out. Anyone who set their stop at the low $22,000 is safely gone now.

But even if the majority of short-term speculators who bought in the mid-$22k and above are now out of the market, profit-taking by those who bought below $20k earlier this year could continue to weigh on prices. If the price of Bitcoin continues to fall this weekend/next week but the realized profit/loss ratio recovers above 1.0, it would indicate increased profit taking from this cohort.

This could arguably be taken as a bearish signal as it is a sign of doubts from potential longer-term holders about the sustainability of the 2023 rally. But for now, bitcoin bulls should not panic. Coinglass data shows that despite Thursday’s decline, there has been no shift in bitcoin leveraged funding rates, which remain modestly positive. According to Coinglass, “Positive funding rates suggest speculators are bullish and long traders are paying funds to short traders.”

While options markets have switched to slightly increased risk of near-term downside over the next seven days, many traders remain confident that the recent pullback is not the start of a dip to the 2022 lows. In fact, options markets are still sending positive signals regarding Bitcoin’s longer-term prospects, as evidenced by the fact that Bitcoin’s 25% 180-day delta skew remains above zero and close to recent highs.

Given the growing list of on-chain and technical indicators now all screaming that the 2022 bear market is probably over, and the fact that the end of tightening is yet to come even if the Fed does make some additional rate hikes in light of that it still makes sense to expect a positive trend for the year. But if the US CPI data surprises to the upside next week, Bitcoin could certainly be in for more near-term pain.

A drop below $20,000 could be on the cards, which would likely trigger a fresh stop run from short-term speculators long in the $20,500-$21,500 supply range. However, expect dip buyers to be anxiously waiting to snag a good amount of Bitcoin as it nears its 200-day moving average and realized price, both of which are in the $19,700/$800 range.

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