Bitcoin on-chain data suggests the price is high, what that means

Following last week’s Bitcoin price crash, on-chain data paints a picture that suggests a “top-heavy” price. Glassnode’s latest insights shed light on current market dynamics, where the cost basis of a significant portion of BTC spot supply is either close to or exceeds the prevailing price.

“Here we see that 12.8% (2.48M BTC) of supply saw an unrealized loss this week, marking a lower bottom for this metric. This suggests that “top-heavyness” in spot markets may also play a role,” commented Checkmate, Glassnode’s principal analyst.

Bitcoin percentage offer in profit | Source: Glassnode

Long-Term Holders (LTHs) in particular have shown remarkable resilience during this turbulent period. Their interaction with exchanges remains largely unchanged, with the overall balance of LTHs marking a new all-time high (ATH) this week. In stark contrast, the behavior of Short-Term Holders (STHs) proves to be particularly salient.

Checkmate notes, “With LTH supply at ATH, we can also see STH supply remaining at multi-year lows.” The data further underscores this: Of the 2.56 million BTC sold by STHs held, only 300,000 BTC (11.7%) remain in profit, meaning 88.3% are in loss. According to Checkmate, this needs to recover quickly, otherwise the situation will continue to get worse.

Bitcoin STH supply at a loss | Source: Glassnode

Historical data points to a sharp increase in STH supply losses after periods labeled as “top-heavy markets” – similar to events in May 2021, December 2021 and again in the last week.

Impact on Bitcoin price

The fluctuating dynamic between profits and losses observed in the market can be further distilled by the metric Profit or Loss Bias (Dominance). As the 2023 rally unfolded, there was a discernible shift in the position of the STH cohort: “This week we saw the biggest loss dominance since the March sell-off to $19.8k.” that the STH cohort is largely underwater with its holdings and increasingly price sensitive,” added Checkmate.

An intriguing discovery comes from Glassnode’s experimental tool, which aims to spot market turning points. Carefully designed to capture investors’ macroeconomic trends and the prevalence of profitability versus losses (and vice versa), this tool offers a sophisticated ‘momentum indicator’.

According to Checkmate, “We can see that after several months of declining profit dominance, loss momentum and dominance have increased significantly.” It is worth noting that while false positives have been recorded – as observed in the March 2023 correction – sustained declines have been in the past Harbingers of stronger downtrends.

Overall, the Bitcoin price crash on Aug. 17 is the most significant one-day drop since the start of the year. The sell-off was primarily a result of leverage in the futures market and thus primarily a result of short-term positioning and market structure.

However, the prevailing sentiment is one of caution, mainly because the biggest impacts were technical, specifically the breach of the long-term moving averages, a factor that could affect market sentiment.

Long-term holders remain stoic, but the focus is on the short-term holders. With an overwhelming 88.3% (equivalent to 2.26M BTC) of their supply showing unrealized loss, combined with a surge in realized losses sent to exchanges and a breach of key technical support, the blame lies with the bulls, their to defend stance. Checkmate concludes:

There is certainly potential for further downside momentum, but most of the damage is positioning and technical. The bull case is that realistically nothing has changed except for the price and the R/R is still in favor of the upside. Calls over 12,000 are just a joke, but so are calls over 100,000.

Net result == the same as every year before the halving.

At press time, bitcoin price is trading at $26,084.

BTC price hovers above $26,000, 1-day chart | Source BTCUSD on TradingView.com

Selected image from iStock, chart from TradingView.com

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