Bitcoin Supply In Loss Turns Upward—Early Bear Market Signal?

Overview

Recent on-chain data indicates a notable shift in the Bitcoin Supply in Loss indicator, which has historically signaled the onset of bearish market phases. The 365-day simple moving average (SMA) of this metric has been trending upward, suggesting a potential change in market sentiment.

What Happened

The Bitcoin Supply in Loss metric, as analyzed by an expert in a CryptoQuant Quicktake post, measures the percentage of Bitcoin currently held at a net unrealized loss. This is determined by examining the transaction history of each Bitcoin token in circulation to establish the price at which each was last transacted. If the last transaction price exceeds the current market price, the token is classified as being “underwater.”

This indicator aggregates all coins that fall into the category of being in loss, providing insights into market conditions. A counterpart metric known as the Supply in Profit tracks the opposite scenario, with both metrics collectively accounting for the total Bitcoin supply.

Recently, the 365-day SMA of the Bitcoin Supply in Loss experienced a significant decline, reaching its lowest point for the current cycle in October. This drop coincided with Bitcoin’s rally to a new all-time high beyond a specific price level. However, following this peak, the indicator has seen a rapid increase, reflecting the bearish momentum that has affected Bitcoin since reaching its all-time high.

While the current rise in the Supply in Loss indicator has not yet reached critical levels compared to previous capitulation points, the observed change in direction is becoming more pronounced. Historical data suggests that such upward shifts in the Supply in Loss have often marked the beginning of bear markets, indicating that losses extend beyond short-term holders to longer-term investors.

Notably, the chart depicting the 365-day SMA of the Bitcoin Supply in Loss reveals that previous transitions into bearish phases aligned with peaks in this indicator. Conversely, earlier in the current cycle, a similar upward movement in the Supply in Loss was only temporary, as it ultimately led to a resurgence in bullish momentum following a drawdown.

From Author

The dynamics of the Bitcoin Supply in Loss provide critical insights into the market’s psychological landscape. As this indicator begins to rise, it reflects growing unease among investors, particularly those who may have acquired Bitcoin at higher prices. Understanding these patterns can be essential for market participants who are navigating the volatile cryptocurrency space.

Impact on the Crypto Market

• The upward trend in the Bitcoin Supply in Loss may signal increased selling pressure as more holders enter a state of loss.
• Historical precedents suggest that such changes can foreshadow broader market downturns, impacting investor sentiment.
• The current dynamics could influence trading strategies, with traders potentially adopting more conservative positions in anticipation of a prolonged bearish phase.
• Monitoring the Supply in Profit alongside the Supply in Loss can offer a more comprehensive view of market health and investor behavior.
• This shift may lead to increased volatility in Bitcoin’s price as market participants react to changing conditions.