Bitcoin Struggles Below ETF Cost Basis as Profitable Supply Reaches Cycle Lows

Bitcoin is currently trading below the average purchase price of U.S. spot exchange-traded fund (ETF) investors, following its second and third-largest weekly outflows on record. This situation coincides with a significant decline in the amount of Bitcoin (BTC) being held at a profit throughout the network.

Key Takeaways

Bitcoin is trading below the average purchase price for U.S. ETF investors.
Recent data shows a significant decline in profitable Bitcoin supply.
The convergence of ETF losses and decreased profitability affects market actions.
Price stability may require prolonged consolidation or renewed demand.

Bitcoin trades below ETF cost basis as profitable supply falls to cycle lows

According to data from Galaxy Research, Bitcoin's price has fallen beneath the average price paid by ETF investors due to consecutive weeks of substantial redemptions. This development has resulted in many ETF holders experiencing unrealized losses. In late January, weekly outflows surpassed several billion dollars, and further declines are anticipated.

In conjunction, on-chain metrics reveal a widespread downturn in holder profitability. CryptoQuant's Supply in Profit metric illustrates that the number of Bitcoin held at an unrealized gain has plummeted to approximately 11–12 million BTC, a drop from about 19–20 million BTC in August. This reduction represents one of the lowest figures recorded in the current market cycle.

ETF Positioning Takes a Downward Turn

The ETF cost-basis chart highlights an unusual alignment between institutional strategies and on-chain stress indicators. Previous price drops had shielded ETF buyers to some extent; however, the recent downturn has driven spot prices below the average entry level of U.S. ETF inflows since the fund's inception.

Bitcoin ETF cost basis

As of the latest data, Bitcoin was priced around $74,000, while the average ETF cost basis stands above $84,000. This situation indicates that a considerable portion of institutional investments is now underwater. Historically, when spot prices fall below the ETF cost basis, short-term demand tends to decrease, with inflows slowing and redemptions becoming more sensitive to market volatility.

A Decrease in Profitable Supply

The reduction in supply held at a profit signals that the current market downturn is affecting not just new buyers or leveraged traders but also a broad spectrum of holders. Since October, every recovery attempt has failed to significantly restore the amount of BTC in profit. Brief rallies in December and early January resulted in only slight increases before renewed selling pressure drove more coins into losses.

Bitcoin supply in profit

This ongoing trend suggests that the market is shifting from profit-driven selling to loss-driven consolidation. As more holders find themselves at a loss, selling pressure generally eases after an initial drop, leading to price fluctuations that become more constrained as participants are reluctant to realize losses.

Market Implications

The combination of ETF losses and the decreasing profitability of Bitcoin holders contributes to the market's recent behavior, which has included muted rebounds, reduced liquidity, and an increased sensitivity to economic news. Instead of experiencing a cascading liquidation due to leverage, the current price activity is indicative of a structural adjustment in market positioning.

For stabilization to occur, the market typically requires either an extended consolidation period that permits cost bases to adapt or a resurgence in demand that is strong enough to elevate prices back above critical aggregate entry levels. Until such conditions are met, upward momentum is likely to remain limited.