Bitcoin has recently experienced significant sell-side pressure, leading to a substantial price drop and declining investor confidence.
Bitcoin‘s price has faced increasing sell-side pressure, causing it to drop by over 5.5% in the past week, reaching a six-week low of $58,400 on June 25. According to market intelligence firm Glassnode, this decline pushed BTC below its short-term cost basis, indicating a potential for a deeper correction.
What is the cost basis?
The cost basis is the original value or purchase price of an asset. In this context, it helps determine whether Bitcoin holders are currently in profit or loss.
“Since mid-June, the spot price has fallen below the cost basis for both 1-week to 1-month holders ($68.5k) and 1-month to 3-month holders ($66.4k),” Glassnode reported in its “Week On-chain” newsletter published on June 25. “If this trend continues, it could lead to a further decline in investor confidence, making the correction deeper and recovery slower.”
Understanding short-term holder (STH) realized price
The short-term holder (STH) cost basis, or realized price, is a metric that indicates the average purchase price of Bitcoin for investors who have held their coins for less than 155 days.
Understanding investor behavior is crucial in assessing the dynamics of the Bitcoin market.
Short-term holders, those who have kept their coins for less than 155 days, tend to react more quickly to market fluctuations.
When Bitcoin’s price falls below its average purchase price or cost basis, it often triggers panic selling as these investors seek to minimize their losses.
This can lead to a cascading effect, further driving down the price.
In contrast, long-term holders who have held their coins for more than 155 days typically have a higher cost basis and are more resilient to short-term price volatility. Their investment strategies are often rooted in long-term growth expectations, making them less likely to sell during market downturns.
The recent market trends highlight a worrying shift in investor sentiment.
The fact that the cost basis for short-term holders has fallen below that of mid-term holders (1 to 3 months) signals weakening demand and a net outflow of capital from Bitcoin.
Such a structure has historically led to deeper corrections and prolonged recovery periods. The current market environment, characterized by significant outflows from Bitcoin ETFs and a general decline in investor confidence, mirrors patterns observed in previous market cycles where similar negative capital flows resulted in substantial price declines.
According to data from LookIntoBitcoin, when BTC dropped below the $64,000 mark on June 23, it fell below the STH realized price, which was $64,591 at that time.
Bitcoin short-term holder realized price. Source: LookIntoBitcoin
Furthermore, the recent price drop nearly brought Bitcoin below the cost basis for holders of 3 to 6 months, which is $57,300.
This cost basis is still increasing despite the falling price. The report also notes that the cost basis for 1-week to 1-month holders has fallen below that of 1-month to 3-month holders. This indicates a decline in demand and a net capital outflow from Bitcoin.
Investor confidence and market trends
“During previous bull markets, a negative capital flow structure has happened up to five times. This pattern has been present since May and continued into early June,” the Glassnode report states.
Spot Bitcoin ETFs see an uptick in inflows
Spot Bitcoin ETFs are experiencing an increase in inflows. On June 25, the 10 U.S.-based spot Bitcoin exchange-traded funds (ETFs) saw inflows totaling $31 million, breaking a seven-day streak of outflows.
According to SoSo Value, Fidelity’s ETF FBTC led the way with $49 million in net inflows on June 25. It was followed by the Bitwise Bitcoin ETF BITB, which saw $15 million in inflows, and the VanEck Bitcoin Trust ETF HODL, which had $4 million in net inflows.
Contrasting Trends in ETFs
On the other hand, the Grayscale ETF GBTC experienced a single-day outflow of $30.2 million, while the ARK 21Shares Bitcoin ETF saw $6 million in net outflows.
As of the end of June 2024, the ten spot Bitcoin funds that started trading on January 11 have accumulated net inflows of $14.42 billion, managing over $53.56 billion in assets. The significant outflows observed over the past few weeks are the highest since April, when spot Bitcoin ETFs recorded net outflows exceeding $1.2 billion between April 24 and early May.