Bitcoin not yet in a bearish phase despite on-chain and futures liquidity contraction: Glassnode

• Bitcoin trades above $81,000 as on-chain data and futures markets reveal a decline in liquidity.
• Short-term holders hit $7 billion in sustained losses, marking the longest prolonged deficit of this cycle.
• Long-term holders continue to hold profits despite price declines, indicating that the market has not entered a bearish phase.

Bitcoin (BTC) traded above $81,000 on Wednesday as both its on-chain liquidity and futures open interest declined, according to Glassnode's weekly report. The report revealed that the current market downturn may not signal a bearish transition as long-term holders (LTHs) have yet to discharge a huge portion of their profit.

Bitcoin futures and on-chain liquidity declines despite long-term holders' resilience

Bitcoin continues to trade within the $80,000 – $83,000 price range, down 25% from its all-time high of $109,114.

BTC's current lag in recovery is due to a lack of capital inflows to support higher prices. There have also been heavy contractions in Bitcoin's liquidity, leading to increased price volatility.

Glassnode noted that Bitcoin's Hot Supply volume — the number of BTC aged one week or less — has declined more than 50%, signifying a drop in trading appetite among investors. Likewise, Bitcoin witnessed a decline in futures trading activity, buoyed by a 35% drop in open interest within the past months.

Open interest is the total number of outstanding contracts in a derivatives market. 

The report also highlighted that Bitcoin inflows to exchanges, which serve as a hub for trading activity, have seen a significant decline. During BTC's market peak, inflows across all exchanges were recorded at over 58.6K BTC per day. However, this figure has now dropped to approximately 26.9K BTC per day, reflecting a more than 54% decrease.

The decline point to a more pressured short-term holder cohort, largely contributing to the recent market contraction.

"When evaluating the rolling 30-day sum of Short-Term Holder losses, we note that a large portion of new investors has capitulated under the immense drawdown pressure," Glassnode stated.

BTC short-term holder rolling 30-day realized loss. Source: Glassnode

The short-term holder cohort has experienced $7 billion in extended losses in this cycle — the longest sustained loss-taking period in the cycle.

However, compared with sell-offs from previous cycles, short-term holder losses are yet to have a stronger impact on the market.

"The scale of unrealized losses is also considerably less severe than those experienced during the May 2021 sell-off, and in the 2022 bear market," Glassnode added.

In contrast to short-term holder behavior, long-term holders are still showing signs of bullish expectations. Despite recent market corrections, this holder group has shown more desire to hold their profits. 

Glassnode stated that this could signal a slight shift in sentiment, indicating that the market has not entered a bearish phase.

BTC cumulative LTH realized profit (bull market). Source: Glassnode

Bull markets are often capped by strong profit-taking among long-term holders, which signals a complete shift to bearish behavior. However, despite Bitcoin's volatility in recent weeks, the LTH cohort continues to maintain a large portion of their profits.

This indicates that long-term holders may still be expecting another rally later in the year.

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