Bitcoin Short-Term Holders Capitulate As STH-MVRV Ratio Drops Below 1.0

Bitcoin crashed below $50,000 on August 5 in a sudden dip that saw many positions liquidated in the crypto market. This sudden dip, which cascaded into

Bitcoin’s downturn earlier in the month, which saw the pioneer cryptocurrency’s price briefly crash below $50,000, was largely driven by an overreaction from short-term holders, a recent report has shown.

According to the report from Glassnode, a leading blockchain analysis and intelligence firm, short-term holders were quick to capitulate and liquidate their positions in the face of the initial market dip. This trend, the report said, played a significant role in amplifying the downturn.

Short-term holders are typically defined as those investors who hold onto their cryptocurrency assets for a relatively brief period, often around a month or so. As such, they are quickly prone to capitulating during periods of price corrections. This trend has particularly been evident in the latest Bitcoin price correction/consolidation, which has lasted far longer than many investors expected.

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As highlighted in Glassnode’s latest on-chain report, a key metric that took a hit was the STH-MVRV (Market Value to Realized Value) ratio, which fell below the critical equilibrium value of 1.0.

When the STH-MVRV ratio dips below 1.0, it suggests that, on average, new investors are holding their Bitcoin at a loss rather than a profit. These unrealized losses, often referred to as paper losses, occur when the market value of an asset is lower than the price at which it was acquired, but the asset has not yet been sold. This is different from realized losses, which arise from completed trades.

While periods of brief unrealized loss are common during bull markets, they tend to put selling pressure on the price of Bitcoin. This is because sustained periods of STH-MVRV trading below 1.0 often lead to a higher likelihood of panic and capitulation among short-term holders. Notably, this phenomenon contributed to the Bitcoin crash earlier in the month.

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Furthermore, Glassnode’s report showed this correlation and selling pressure might already be materializing, with the STH-SOPR (Spent Output Profit Ratio) also trading below 1.0. The STH-SOPR ratio measures the profitability of spent outputs, indicating whether assets are being sold at a profit or loss.

What this essentially means is that many short-term investors are more taking realized losses than profit. This follows the claim that many short-term holders have been overreacting to the price corrections.

While short-term holders have carried most of the losses across the recent downturn, long-term holders remain strong. At the time of writing, Bitcoin is trading at $59,540 and is down by 2.15% in the past 24 hours.

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