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Bitcoin’s sharp drop in value is a result of the ‘Correlation-1 event’ that has affected global markets.
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On chain data reveals significant anxiety among short-term Bitcoin owners.
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The spot price finds support. However, a break below the key levels could signal an impending bear market.
In the first week in August, both the stock and crypto markets were impacted by significant volatility, triggered a “correlation-1”, resulting in an explosive sell-off. Bitcoin (BTC), which has been the most popular cryptocurrency, experienced its steepest price decline of the cycle. This sparked a cautious mood among short-term investors.
On August 5, global markets plunged sharply due to the unwinding yen carry-trade and fears of recession, which boosted US Treasury bonds. Bitcoin’s price fell by 32% compared to its all-time peak, a record for the current cycle.
The Mayer Multiple, a comparison of the current Bitcoin price with the 200-day moving median (200DMA), shows the severity of the price contraction. Bitcoin’s current Mayer Multiple of 0.88 is its lowest level since the FTX crash in late 2022.
Glassnode’s on-chain market intelligence platform also provided valuable insights regarding the impact of recent sell-off. The data shows that the Short-Term Holder Cost Basis is $64,300 and the -1SD Band is $49,600. The spot price was close to this -1SD range, which is a rare historical occurrence, and emphasized the rapid market decline.
Moreover, according to the Short-Term Holder MVRV, which measures unrealized profits or losses among new Bitcoin investors since the FTX crash, this is the largest loss ever recorded. Only 7% of the Short-Term Holder Supply is profitable. This indicates that recent buyers are under significant financial stress.
The True-Market mean ($45,9k) and Active investor price ($51,2k) estimate the average cost base for active investors. The spot price finding some support near these levels may indicate potential buy-side support. A break below these levels would indicate a move towards a bearish market with many investors likely to suffer losses.
The market decline led to losses of about $1.38billion, the 13th largest ever in USD terms. Short-term investors accounted for 97%.
On the derivatives markets, $275 million in long positions and $90 millions in short positions totaled $365 million. This resulted in a significant drop in futures open interests, suggesting a reset of the market.
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