Glassnode: Will there be a major turning point in investor sentiment?

summary

• Digital assets have experienced significant sell-side pressure in recent weeks, with Bitcoin falling 28% and Ethereum and Solana prices plunging more than 50% since their cycle highs.

• As markets sold off, realized losses increased significantly, marking the second-largest loss event of the cycle, highlighting the severity of the correction.

• The major digital asset did briefly rebound after President Trump announced a strategic cryptocurrency reserve. However, this turned into another “sell the news” event, and prices continued to fall and are below the levels seen before the information was released.

• The strong confluence between price structure and key on-chain indicators suggests that $92,000 remains a crucial level for Bitcoin to reestablish upside momentum, while the level around $70,000 appears to be a key area for bulls to establish support if reached.

Wild fluctuations

The liquidity of the overall economy continues to shrink, as evidenced by the continuous upward trend of the US dollar index (DXY) for several months. As an asset traded around the clock, the price of digital assets is often the first to react to the contraction of liquidity, providing leading signals for other markets.

Over the weekend, President Trump announced that he was developing a strategic cryptocurrency reserve plan that would include BTC, ETH, SOL, ADA, and XRP. This led to a brief but strong recovery in market forces and a sharp rise in prices.

However, in the days that followed, each asset retraced this move sharply, turning it into a classic sell-off on news events as prices fell back below pre-announcement levels.

Bitcoin remains the most resilient of the group, with its deeper liquidity profile and market size making large market moves more difficult to achieve. However, the second and third largest digital assets, Ethereum and Solana, have both experienced fairly large depreciations, falling more than 50% from their cycle highs.

Volatility Release

This has led to a very volatile two weeks against the backdrop of an uncertain political environment, as the wild swings in price action demonstrate.

We can see that Bitcoin’s actual volatility has surged over several timeframes. To put this into perspective, the 1-week and 2-week rolling windows have recorded the highest volatility values ​​over the period to date, exceeding 80%.

On-chain data can provide a certain level of clarity into the acquisition patterns of market participants. The URPD indicator is a great tool that provides us with perspective on the cost basis clusters of BTC supply.

It is worth noting that the initial plunge in price took the market below $86,000 with few coins changing hands before that. In a way, the market is testing whether bulls are willing to provide demand support in this area, especially since so many coins were acquired above $90,000 and are now holding unrealized losses.

Between February 26 and March 3, over 150,000 tokens (0.76% of the circulating supply, equivalent to $14.2 billion) were purchased in this “gap” area below $86,000.

The price starts to recover towards the upper limit of this area, and it remains to be seen whether investors from the large cluster above $90,000 will use this rally as an opportunity to exit liquidity and cut their losses.

The actual supply density indicator quantifies the amount of supply concentrated around the current spot price within a ±10% price change range. When supply is highly concentrated around the spot price, small changes can significantly affect investors' profitability, thereby exacerbating market volatility.

Under these assumptions, we can observe how supply, previously concentrated within a narrow price range, responds to heightened volatility. As prices fall, actual supply density drops dramatically, indicating a dramatic shift in investor profitability.

The indicator highlights the wild volatility the market has experienced, which could affect investor sentiment going forward.

loss

Although Bitcoin has performed better relative to other major assets, the recent sell-off still represents the second-largest weekly drop of this cycle. The market fell -13.9% last week, second only to the unwinding of the yen carry trade that occurred on August 5, 2024.

While the correction was sharp, the magnitude of the decline is still consistent with previous declines in this cycle, with Bitcoin trading 28% below its all-time high. This highlights Bitcoin’s relatively strong demand profile in the 2023-25 ​​uptrend, which is characterized by smaller declines compared to previous cycles.

While the 28% drop in 2023-25 ​​is a larger decline, the typical decline in 2017 was over 30%, and the 2019-21 cycle saw multiple declines of 50%.

Challenging

When there is a sell-off in the Bitcoin market, studying how investors react can yield valuable insights. This helps us better understand changes in behavioral patterns and overall sentiment.

We can see clear consistency in the accumulation and allocation behavior of different wallet sizes. In the past two months, all wallet size groups have made large allocations, bringing huge sell-side pressure to the market.

The intensity of this selling pressure has increased since mid-January, contributing to the recent weakness in the market.

A large portion of the sellers came from locking in losing tokens. Actual losses for all market participants this week amounted to $818 million/day, with only the yen carry trade liquidation on August 5, 2024 recording a larger value ($1.34 billion).

This suggests that the current market downturn is a challenging environment for investors, with many exiting the market at below their cost basis under pressure from losses.

Looking at the SOPR metric (which assesses the average profit/loss multiple locked in by investors), we note that this is the first loss-dominated period since October 2024.

However, if SOPR finds support at the breakeven level of 1.0, the structure remains constructive. A quick and brief decline from the breakeven level of 1.0 suggests that investors are buying and defending their cost basis, which is a typical feature of a bull market.

In addition, as a proxy for new demand in the market, the short-term holder group recorded the second largest negative SOPR data in this cycle, once again highlighting the extremely difficult market environment faced by new investors.

This suggests that new investors have locked in big losses this week, which could be a sign of a major turning point in investor sentiment.

Keeping the momentum going

We will now use on-chain data to assess price action and how the market is trading relative to key cost basis levels.

Evaluating the pricing structure over the past few months, we noticed three key pricing points:

• In November 2024, the initial range exceeded $70,000.

• Prices surged as the market broke through $80,000.

• During the consolidation phase, the range low was around $90,000.

Historically, the short-term holder cost basis has been an important reference level in bullish uptrends. We calculate the ±1σ interval of the short-term holder cost basis, which usually acts as the upper and lower limits of local price action.

Currently, these levels are trading at:

• Short-term holder cost basis + 1σ: $130,000

• Short-term holders' cost basis: $92,000

• Short-term holder cost basis - 1σ: $71,000

This week, the spot price has fallen below the short-term holders cost basis and is currently trading within this level and the lower -1σ range.

Active realized prices help support this assessment. Active realized prices provide a more realistic estimate of cost basis for active investors. Since 50% of trading days are above and below the active realized price, this level can be considered a critical threshold that distinguishes bull and bear markets.

Active realized prices are trading at $70,000, which is consistent with the lower STH-CB band as well as the previously discussed air gap lower band in the URPD indicator. Due to the significant confluence between several key cost basis indicators, this price area becomes an area to watch and perhaps the last line of defense for bulls in the event of a complete sell-off.

Summarize

Heightened volatility in recent months has led to a general decline in the prices of all digital assets. This has triggered a significant loss event, which is the second largest sell-off in our current cycle.

For the Bitcoin market, a decisive reaction to the short-term holders’ cost basis around $92,000 appears to be a key level to monitor local momentum. If the market deteriorates further, the $71,000 area will become a key area of ​​focus. It is consistent with multiple technical and on-chain indicators that if this level is reached, it will be an important level for bulls to defend.