The recent crash of Bitcoin below $50,000 on August 5 took many in the crypto market by surprise. Short-term holders, defined as those who hold onto their cryptocurrency assets for a brief period, were quick to liquidate their positions in response to the initial decline. This behavior is not uncommon during periods of price corrections, as short-term holders are more prone to capitulating.
Despite the subsequent recovery of Bitcoin by 20% and its current trading price just below $60,000, many short-term holders are still facing unrealized losses. Glassnode’s report highlights the STH-MVRV ratio falling below 1.0, indicating that new investors are holding Bitcoin at a loss rather than a profit. These unrealized losses, also known as paper losses, can contribute to selling pressure in the market.
In addition to the STH-MVRV ratio, the STH-SOPR (Spent Output Profit Ratio) is also trading below 1.0. This ratio measures the profitability of spent outputs, indicating whether assets are being sold at a profit or loss. The fact that many short-term investors are taking realized losses rather than profit suggests a trend of overreaction to price corrections.
Long-Term Holders Weather the Storm
While short-term holders are bearing the brunt of losses in the recent downturn, long-term holders are staying strong. The psychological impact of market fluctuations differs between these two groups, with short-term holders more likely to panic and capitulate during periods of price corrections. On the other hand, long-term holders tend to ride out the storm, believing in the long-term value of their investments.
The recent crash of Bitcoin and other cryptocurrencies below key price levels has shed light on the psychological impact of market downturns. Short-term holders, who are quick to react to price fluctuations, face unrealized losses and selling pressure during corrections. On the other hand, long-term holders demonstrate resilience and confidence in their investments. Understanding these psychological factors can help investors navigate volatile markets with a clearer perspective.