Bitcoin: Short-term Investors Under Pressure

While Bitcoin seemed to have reached a plateau of relative stability, a recent Bitfinex Alpha report reveals a much darker reality. Indeed, the flagship cryptocurrency has suffered a dizzying drop of 33%, a plummet not seen since the collapse of FTX in 2022. But what might simply be a market correction actually hides some worrying signals. The Mayer Multiple, a respected indicator that compares Bitcoin’s current price to its 200-day moving average, is reaching historically low levels, while the MVRV ratio of short-term holders falls below the critical threshold. These indicators, highlighted in the latest Bitfinex report, point to extreme stress among new investors and suggest potential consequences for the entire crypto market.

The recent drop in Bitcoin: A worrying plunge according to the Bitfinex Alpha report

The Bitcoin market, which had shown signs of resilience in recent months, faced a severe correction last week. The latest Bitfinex Alpha report highlights a 33% drop in Bitcoin’s price, dragging the cryptocurrency below the $50,000 mark, its lowest level since February. This sudden drop not only surprised investors but was also marked by a rapid deterioration in several key indicators. The Mayer Multiple, an essential indicator for assessing the market’s health, reached 0.88 – its lowest level since the collapse of FTX in November 2022. Bitcoin has thus traded well below its historical trend.

Beyond the simple price drop, the report also highlights another alarming statistic: Bitcoin’s price approached one standard deviation below the average purchase cost of short-term holders, set at $64,860. Such a movement has been observed in only about 7.1% of trading days, making it a rare and worrying event. This threshold crossing reflects not only the intensity of the current selling pressure but also the growing disarray among investors who have acquired bitcoins in the past five months.

Losses are dangerously deepening

The Bitfinex Alpha report highlights a particularly delicate situation for short-term investors, those holding Bitcoin for less than 155 days. These market players, often more sensitive to price fluctuations, are currently experiencing record unrealized losses, the largest since the trough of the 2022 bear market. The MVRV ratio, an indicator comparing Bitcoin’s current market value to the price at which these investors acquired their assets, has fallen below the critical threshold of 1. This means that if these investors decided to liquidate their positions today, they would be forced to sell at a loss. Such a situation reinforces the possibility of a wave of massive sales, thus amplifying the bearish pressure on the market.

This pressure is all the more worrying as the financial stress felt by these new market entrants could trigger a cascade of panic sales. The report highlights that this dynamic could worsen market volatility in the short term, making any stabilization attempts even more complex. Indeed, short-term investors, often less experienced and more vulnerable to market emotions, could panic, thus leading to a downward spiral in Bitcoin’s price.