Bitcoin Supply in Loss Begins to Rise, Triggering Early Bear Market Concerns

Recent analysis from CryptoQuant indicates that Bitcoin's (BTC) supply in loss is increasing, a potentially troubling sign for the cryptocurrency market. This metric has historically foreshadowed bear markets, suggesting market weakness is shifting from short-term traders to long-term holders. In conjunction with these signals, some analysts point to a potentially bullish shift related to the US dollar.

Key Takeaways

Bitcoin's supply in loss is rising, signaling potential market weaknesses.
Historical patterns show that this metric typically increases before a bear market sets in.
Analysts are seeing a mixed outlook, as movements in the US dollar could contribute to future Bitcoin rallies.

Bitcoin

Possible Shift Toward a Bear Market

CryptoQuant's contributor, Woominkyu, has pointed out that a rise in Bitcoin’s supply held at a loss often indicates that market weakness is extending from short-term traders to longer-term holders. This trend has been observed in prior market cycles during 2014, 2018, and 2022, where supply in loss began to increase well before Bitcoin's price hit its lows. During those cycles, Bitcoin prices continued to fall even as the supply in loss rose—confirming that market bottoms typically occur only after a larger capitulation.

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BTC supply in loss. Source: CryptoQuant

Currently, while Bitcoin's supply in loss is still below the levels usually linked to full market capitulation, the change in trend itself is noteworthy. Analysts suggest that this shift may indicate that the market could be entering a bearish phase instead of simply undergoing a minor correction in a bull market. Presently, Bitcoin trades around $89,700, struggling to regain the important $90,000 support level after a decline from earlier yearly highs of approximately $98,000.

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The 1-D chart shows BTC’s inability to reclaim and consolidate above the key $90,000 level. Source: BTCUSDT on TradingView.com

US Dollar Tests Historic Zone for Potential Bitcoin Rallies

Despite these warning signs, not every analyst has a negative outlook. Analysts from Bull Theory have identified a potentially bullish trend emerging from the US dollar's performance. They indicated on social media platform X (formerly Twitter) that the US Dollar Index is approaching levels similar to those that preceded significant Bitcoin bull runs in both 2017 and 2021.

According to Bull Theory, the Dollar Index has dipped below a long-term trendline that has persisted for nearly 16 years and is now around the critical mark of 96. Throughout history, periods when the DXY has fallen below 96 have coincided with notable Bitcoin rallies.

As illustrated in the chart, in mid-2017, the index fell below this threshold, followed by a nearly eightfold surge in Bitcoin over the ensuing five to six months. A comparable pattern unfolded during the 2020 pandemic.

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Bitcoin’s historical rallies against the US dollar’s performance. Source: Bull Theory on X

During this time, as liquidity flooded financial markets, the DXY again dipped below 96, leading Bitcoin to rise approximately sevenfold over the next seven to eight months. Many altcoins, including Ethereum (ETH), achieved gains of tenfold or more during this period.

At this juncture, the cryptocurrency market finds itself at a crossroads. On-chain data suggests early signs of a bear market, while macroeconomic trends tied to the US dollar present a counter-narrative that may support renewed market strength.

Featured image from OpenArt, chart from TradingView.com