Bitcoin Sees Unusual Short-Term Supply Spike, Raising Bearish Flags

Overview

Bitcoin has experienced a notable supply spike among short-term holders, raising concerns about potential bearish market conditions. Following a short squeeze in mid-December, the cryptocurrency has struggled to gain any significant price traction, leading analysts to highlight troubling trends in market behavior.

Current Market Situation

Since the short squeeze in mid-December, Bitcoin’s price has remained stagnant, facing multiple rejections around the $90,000 zone. Currently, it is consolidating within the $87,000 range as investors wait for a clearer market direction. Pseudonymous analyst Sunny Mom has pointed out that recent on-chain analysis indicates a prevailing bearish sentiment that may persist in the months ahead. This sentiment follows a prolonged corrective phase that took place in October and November.

Short-Term Holder Dynamics

In a recent QuickTake post, Sunny Mom discussed the BTC HODL waves, which reflect an increase in the proportion of coins held by short-term holders (STHs). This rise has coincided with falling prices, which is atypical since such increases usually indicate the entry of fresh capital into the market ahead of potential rallies. However, Mom characterizes this current trend as “passive bag-holding” rather than a sign of new investments.

Investors who purchased Bitcoin during the $120,000 rally in October, driven by fear of missing out (FOMO), and those who bought during the dip in November now find themselves with unrealized losses. This situation creates a price dynamic that alters market behavior, where each relief rally is met with selling pressure from these holders attempting to exit at breakeven. Consequently, this expanding cohort of short-term holders acts more like a ceiling on price increases rather than a supportive floor.

Emotional Toll and Market Behavior

Mom notes that the emotional strain on the market is becoming increasingly evident on-chain. Since the liquidations in October, there have been repeated spikes in Net Realized Loss (NRL), suggesting that capitulation is occurring as investors lock in losses following months of holding. This process is described as a “dull knife” cutting deep, indicating that weaker hands are being forced out of the market, not via a singular event but through prolonged exhaustion.

Demand Vacuum and Market Outlook

In further analysis, Mom attributes the bearish market setup to a demand vacuum. Exchange reserves are currently near multi-year lows, indicating limited immediate sell-side liquidity. Meanwhile, long-term holders (LTHs) appear disinterested in selling their coins, suggesting that conviction capital remains intact. The primary issue seems to be on the demand side, as new buyers are hesitant to enter the market amid ongoing macroeconomic uncertainty. This lack of demand results in thin order books, meaning even small amounts of sell pressure can lead to significant price drops.

While some market observers speculate on a potential recovery in the first quarter of 2026, citing anticipated rate cuts and improved global liquidity, Mom believes that Bitcoin may need a “final shakeout” to address the current imbalance. He indicates that a potential decline below $80,000 could serve as a liquidity hunt, flushing out remaining weak hands and allowing larger holders to reaccumulate.

From author

The prevailing analysis of Bitcoin’s market behavior highlights the complexities surrounding short-term holders and the emotional dynamics at play. As the market continues to navigate through these challenges, investor sentiment will be critical in determining future price movements.

Impact on the crypto market

• Increased short-term holder supply raises concerns about sustained bearish pressure.
• Emotional strain visible on-chain, with repeated spikes in Net Realized Loss indicating capitulation.
• Demand vacuum creates a challenging environment for price recovery.
• Limited immediate sell-side liquidity due to low exchange reserves.
• Potential for further price declines as weak hands are flushed out.
• Larger holders may be positioned to reaccumulate if market conditions stabilize.