The Bitcoin drop of the last 2-3 days is one that has a clear behavioral signature and is worth discussing. It is not profit takers selling off the top; it’s holders who are deep in the red who are finally getting frustrated.
This is the Short-Term Holder P&L to Exchanges Sum 24H metric, which counts coin transfers to exchanges made by any wallets holding BTC for under 155 days; this sum is then broken down by profit or loss flow (in comparison to acquisition price). Profit or loss flow tells very distinct things about the mindset of market participants.
The numbers are striking
The breakdown at the last 24 hr reading is as follows:
- STH profit inflows to exchanges: ~112 BTC
- STH loss inflows to exchanges: ~15,000 BTC
- STH total inflows to exchanges: ~15,100 BTC
Approximately 112 BTC from short-term holders in profit flowed into exchanges. 15,000 BTC from short-term holders in loss flowed into exchanges. This indicates that in that time period, more than 99 percent of the total short-term holder exchange flows were loss-driven; profitable hands did not move.
This is not a slow transition, if we are looking at the overall chart February to mid May the STH loss inflow (the red fill) be the most significant of all of the exchange flows for a significant majority of this time, as BTC has remained between a $56k bottom and an $88k top that was reached in late January. The asset’s market is currently near the upper bound of the loss inflow, not at the heights that we saw when February’s dip took the price towards $56k
What this structure actually implies
The 112 BTC profit in this metric doesn’t imply conviction from short-term holders who are in profit. Rather, it might mean a lack of many short-term holders who are in profit. When a quick, sharp correction occurs after a new high push, then all the recent buys at the highs get pushed into an underwater state. Many that recently bought between approx. $97K and $104K during the recent leg now sit on an unrealized loss as the price trades at $76.5K-$79K for this period.
This discrepancy is where the signal lies. When distributions are going healthy, the profiting coin will land on exchanges together with the losing coin. Sellers secure profits and the market absorbs the supply. Price should then react accordingly. However, what is shown here is a market where a majority of the cohort with the profit is mute, whereas the cohort taking the loss is actually active and expanding. This specific kind of behavior usually occurs either during the end part of a flush when weak holders are completely done or during the earlier part of a sustained dip when the whole holder base hasn’t capitulated yet.
This longest-term chart, the max inflow line (the white dashed top boundary) is located very high above the current STH total inflows of 15,100 BTC. This is significant since prior capitulation low periods that established durable bottoms also coincided with total STH inflows pushing to or past the max band. Currently this is high but not past that historic max, implying the flush is not finished.
The profit/loss ratio as a contrarian signal
The 112 Bitcoin profit inflow versus the 15,000 BTC loss inflow could also be viewed through the simplistic ratio of how much STH exchange inflow came from coins currently at profit. In the past, significant imbalances to the loss side of the ratio have tended to predate a period of sideways price action or reversals because this indicates that the most impatient and most leveraged recent buyers have already capitulated, leaving a cleaner supply available.
However, that signal is probabilistic, not absolute. For several days within a larger drawdown, this ratio could remain elevated. That could be disrupted if losses start to contract and price holds or turns, if any profit inflows return, or if total STH exchange inflow rolls over. As of the current analysis, it doesn’t seem like there are any confirmations here.
Context from the longer-term view
Stepping back to the February-May chart shows there is a structural relationship here that should be noted. Total STH inbound to exchanges (purple line) has oscillated back and forth around the min and max bounds. There were many instances of very large spikes above the band occurring when price experienced large dislocations, which include Feb. 9 as price was going towards $100k and April 13 as price was recovering from the low in the $74k range.
Current reading of 15,100BTC for net STH inflows is not in the upper end of activity but also not close to spike extremities. The level indicates the market has had some amount of real pressure from the recent buyers; however, it hasn’t experienced an outright liquidation that marks the final capitulation.