"Further weakness may motivate these underwater sellers to finally capitulate," Glassnode warns in its weekly report.
Bitcoin is at a crossroads — with an "increasingly significant" volume of BTC's supply now in an unrealised loss, Glassnode has warned.
In its latest weekly report, the analytics firm revealed that 5.7 million BTC — that's about 30% of the cryptocurrency's circulating supply — is now underwater.
A metric known as the Percent of Supply in Profit is now said to be at a "historically significant level" — and Glassnode believes price activity in the coming weeks "will likely provide insight into the medium-term direction of the Bitcoin market." Its blog post added:
"Further weakness may motivate these underwater sellers to finally capitulate, whereas a strong bullish impulse may offer much needed psychological relief, and put more coins back into an unrealized profit."
In other words, there's a danger that investors who made a purchase when Bitcoin was higher may decide to exit their positions — exerting further downward pressure on BTC's price — unless things improve soon.
Overall, Glassnode believes that BTC bears continue to have the upper hand in the market right now — but "modest bullish divergences are appearing across a number of on-chain metrics and indicators."
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Where Things Stand
At the time of writing on Wednesday, Bitcoin stands at $41,314.06 — down 3.18% over the past seven days. Prices have remained pinned below $45,000 for two weeks, but the world's biggest cryptocurrency is yet to slide below $40,000. There are fears that a significant dip below this psychologically significant level could spark additional sell-offs.
BTC last hit all-time highs of $68,789 back in November — and CoinMarketCap data shows that current prices are exactly 40% below these record levels.
It does seem like many investors are adopting a "wait and see" approach right now, and are resisting the urge to sell or spend their coins — hopeful that the current market drama is temporary.
The Crypto Fear and Greed Index remains paralyzed with Extreme Fear — flashing a reading of 24 as of Jan. 19. Those who trust this model argue that low scores represent a buying opportunity, not least because they have coincided with market bottoms in the past.
But what's happening in the global economy more widely may mean that history doesn't repeat itself. Runaway inflation has prompted the Federal Reserve to set the stage for interest rate rises — something that could hurt stocks and cryptocurrencies after almost two years of unabated gains.
