More Than 4.7 Million BTC Are Held at a Loss

In Brief:

• The big pullback pushed more than 4.7 million BTC into the unrealized loss zone.
• The majority of those BTC are held by short-term holders.
• Time, not price, is the key factor that can trigger a sell-off.

In a recent report, Glassnode highlighted that over 4.7 million BTC were held at an unrealized loss, which created a risk of a major selling wave. As per Glassnode, “the longer that investors are underwater on their position, and the further they fall into an unrealized loss, the more likely those held coins will be spent and sold.”

Is It a Real Problem?

Glassnode estimates that 54.5% of the above-mentioned 4.7 million BTC is held by short-term holders, which are more likely to sell BTC or spend it.

Obviously, strategic holders like MicroStrategy (whose average purchase price per BTC has already moved above the $30,000 level) are not going to sell BTC in the foreseeable future. The main reason why “public holders” of BTC are not going to move out of Bitcoin is that they would destroy their own bullish thesis and trigger a massive sell-off.

Short-term holders do not face such problems, so they should not hesitate to sell in case BTC price reaches their “pain point”, a price that makes them capitulate and sell BTC.

Time Is the Key Factor

While many would argue that traders and investors are mostly focused on the price of their investment, I’d add that time is a very important factor. If we are not talking about leveraged bets, which may face margin calls during a fast sell-off, many investors and traders can tolerate large drawdowns if the asset quickly rebounds after the major pullback.

At the same time, it is more difficult to deal with long-term pain. Bitcoin reached highs in November 2021, so it has been moving lower for just four months. This is not a serious challenge for those who believe in the future of the crypto industry and in the future of its leading asset.

Problems will start to emerge if BTC fails to rebound in the next months, and traders start to question whether it will be able to gain sustainable upside momentum. In this scenario, some BTC holders will decide to sell at a loss and may trigger a sell-off. In the near term, the significant number of BTC “bagholders” should not be a big problem.