The below is from a recent edition of the Deep Dive, Bitcoin Magazine's premium markets newsletter. To be among the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now.
In the November Monthly Report, we talked about the Net Unrealized Profit/Loss (NUPL) indicator showing the market in a healthy state of unrealized profit compared to previous cycles. We can further break down that indicator into short-term holder and long-term holder groups.
As for short-term holders, one of the biggest near-term concerns is that there are increasing unrealized losses in the market. As price continues to range below the short-term holder cost basis around $53,000, there’s a rising risk that more of the new buyers capitulate and sell their bitcoin at a loss, driving the price lower. This can be a bear market forming or an opportunity for holders to buy cheaper bitcoin.
Periods of sustained, short-term holder capitulation spark new bear markets as new, short-term holder buying is the main bull cycle driver. Yet, we can see in many bull market dynamics that the rising unrealized losses of short-term holders is common and can be short-lived as long as long-term holders have conviction, waiting out for higher prices.
This is a different story for long-term holders who seem fairly comfortable and largely in a healthier state of profit at the current price relative to their realized price (cost-basis). So far with the latest price drawdown, long-term holder supply is in a slightly declining to neutral state. There’s healthy, not excessive profit taking right now signaling a market on hold in a ranging and consolidating state.