On-chain Data Shows Bitcoin Short-Term Holders Have Been Selling at a Loss Recently

Recent market downturn forced Bitcoin short-term holders to sell their coins at a loss, something that has historically led to bottoms.

On-chain data shows that Bitcoin short-term holders have been selling at a notable loss recently, something that has led to bottoms in the past. In its latest weekly report, on-chain analytics firm Glassnode covered how the short-term holders reacted to the recent market downturn.

The “short-term holders” (STHs) are the Bitcoin investors who purchased their coins within the past 155 days. This cohort includes the new entrants into the market, who tend not to be too resolute. As such, the group can be prone to panic in times of volatility.

“Understanding this cohort’s behaviour helps market observers identify moments of extreme seller exhaustion, which have historically presented opportunities for longer-term investors,” notes Glassnode.

Naturally, the latest sharp price action in the cryptocurrency would also have forced these investors into selling. Which way this selloff tends for the group, that is, whether profit or loss realization, can be determined using the “Spent Output Profit Ratio” (SOPR) indicator.

The indicator works by going through the transaction history of each token being sold by the STHs to find the price at which they initially purchased the coins. If this previous price is less than the current spot price for any token, then its sale is added to the profit transactions. Similarly, transfers of the opposite type fall in the loss category.

When the SOPR is greater than 1, it means the investors’ part of the group are realizing a higher amount of profit than loss. On the other hand, it being under the level suggests that loss-taking is the dominant form of selling among the cohort.

Now, here is the chart shared by the analytics firm that shows the trend in the 196-hour moving average (MA) of the Bitcoin STH SOPR over the last couple of years:

As displayed in the above graph, the Bitcoin STH SOPR has fallen below 1 recently, which implies that these recent buyers have started selling at a loss. At the height of this selloff, the metric’s value reached the 0.97 level, which is close to the low observed during the August capitulation.

“This persistent downside momentum has left new investors on edge, leading to widespread panic selling at a loss,” reads the report. “Such conditions often precede local seller exhaustion, a dynamic that long-term investors may monitor for potential re-entry opportunities.”

The reason that STH capitulation tends to help Bitcoin reach a bottom is that coins tend to transfer to more resolute hands during such an event. These HODLers have their cost basis at the lower post-crash prices, so it’s easier for them to sit through any further price plunges.

It now remains to be seen whether the STH loss-taking that has occurred thus far would be enough for BTC to reach a bottom or not.