Bitcoin Analysis: Over 25% of Supply Now Underwater

Bitcoin's recent struggles to surpass the critical $94,000 mark on December 3 have highlighted the growing fragility of the market. Recent on-chain data indicates that over 25% of Bitcoin's supply is now experiencing unrealized losses.

Key Takeaways

On-chain data reveals that more than a quarter of Bitcoin supply is underwater.
Bitcoin fell below its 0.75 cost-basis quantile, indicating increasing market risk.
Attempts to break the $94K resistance have failed, with Bitcoin currently priced around $92,500.
Market momentum appears weakened, with bullish indicators diminishing.
The heightened underwater supply makes the market particularly sensitive to external conditions.

Bitcoin data shows over 25% of supply now underwater

Understanding Bitcoin's Market Challenges

Structural Risk on the Rise

Recent reports from Glassnode show that Bitcoin dropped below its 0.75 cost-basis quantile in mid-November. This decline means that over 25% of the supply, mainly held by recent buyers, is now in the red. Historically, this area is crucial as it reflects a balancing act between capitulation from later investors and the initial signs of seller fatigue, often observed near market bottoms.

Bitcoin underwater

Source: Glassnode

Since breaching this significant threshold, Bitcoin has become more sensitive to macroeconomic conditions and has found it difficult to regain its upward trend.

Resistance at Key Cost-Basis Levels

The importance of the 0.75 quantile became evident during Bitcoin's attempt to reclaim the $94,000 mark on December 3. However, the price quickly reversed and settled lower. Currently priced near $92,500, the market is unstable as it needs to recover above the 0.75 quantile, which sits around $95,800.

Bitcoin price trend

Source: TradingView

A more significant structural change in the market would require Bitcoin to break above the 0.85 quantile, approximately at $106,200. This zone is historically where long-term bullish trends tend to solidify, reducing downside risks.

Weakening Market Momentum

The daily chart for Bitcoin aligns with the concerning on-chain data. The Directional Movement Index (DMI) indicates a decline in bullish momentum, with the positive directional index losing strength while sellers seem to be gaining back control. Although the Average Directional Index (ADX) remains high, it has started to flatten, signaling indecision and potential tightening in the prevailing trend.

The failure to establish higher lows in the chart further indicates that buyers lack the strength to break through the existing resistance that is characteristic of the current cost-basis distribution.

Increased Sensitivity to Macro Conditions

With a significant portion of the supply now underwater, market sentiment has become more reliant on external influences. This means even minor shifts in macroeconomic factors, such as bond yield changes or liquidity fluctuations, could have a greater impact until Bitcoin manages to reclaim the 0.75 quantile and alleviate pressure on recent buyers.

For the time being, the price action appears caught between two possibilities: either a further drop triggered by capitulation from recent top buyers or a stabilization phase supported by seller exhaustion.

Conclusion

As Bitcoin faces these pressing challenges, market participants should remain vigilant. Understanding the dynamics of on-chain data, cost-basis thresholds, and external macroeconomic factors is essential for navigating the current landscape of cryptocurrency.