BTC posts second-largest realized losses for this bull cycle

BTC sellers went through a spot capitulation event, where traders realized losses of over $800M. After a long period of holding, spot traders finally succumbed, repeating a sell-off event last seen in August 2024.

Bitcoin saw holders take the second-biggest losses for this cycle as sellers capitulated and absorbed $800M in losses. This is the biggest spot capitulation event after August 2024, when the unraveling of the Japanese Yen carry trade spread its contagion to the crypto markets. 

This time, most traders capitulated, with only a few buying the dip near the low of $83,000. Up to 30% of the recently accumulated coins in the $97,000 range were redistributed during last week’s capitulation event. 

Based on Coinglass data, peak selling happened last week, as BTC sank under $90,000. Previously, signs of selling originated from the newest wallets that bought near peak prices, but the one-off capitulation event also suggests a local low for Bitcoin. Historically, big spikes in realized losses were followed by at least small recoveries or sideways trading.

The selling happened despite expectations of a successful Q1 for crypto as a whole, and new all-time highs in the past year. During the 2024 halving cycle, both whales and retail have been cautious to trade too early, and avoid round-tripping assets, even Bitcoin.

Despite calls for strong holders, there is a cohort of wallets that is prepared to sell for short-term profits. 

The capitulation is based on the behavior of newer buyers, as the deepest selling originated from wallets aged up to 3 months. Older wallets were more conservative, though they usually sell near the market top. Overall, long-term holders have been selling cautiously since September 2024, but have not absorbed the recent losses. 

The recent event affected both BTC and altcoins. At the deepest point of the sale, the Fear and Greed Index fell near its lowest range at 6 points. However, the market has recovered from similar dips, and some see the event as clearing excess liquidity in preparation for more attempts at new price records.

BTC recovers after capitulation

After last week’s capitulation event, BTC bounced quickly after a dip under $80,000. BTC recovered over the weekend to above $94,000 after the announcement of a US crypto reserve. After that, BTC went through another crash to $82,000. Currently, BTC has recovered to $89,863.39, though renewed buying remains more cautious. 

BTC open interest is down to levels from November 2024, at around $24.8B. Open interest is growing cautiously, as market sentiment remains fearful. One of the rationales of the recent market crash is that this is not yet a true cycle capitulation, but a regular 25% drawdown. Near the lows, buying resumes, awaiting the next potential rally. 

The recent expectations were for BTC to continue its hike above $100,000 with no significant drawdown. However, unexpected events caused panic. Long liquidations reached another local peak, preserving the trend of knocking down overly greedy traders. 

Long-term holders retain their dominance

Even a relatively small sale is enough to depress the BTC spot price. In the long run, however, long-term holders retain their positions. Corporate buyers still hold 3.13M Bitcoins, spread among miners and special corporate treasuries. 

Strategy (formerly MicroStrategy) is seen as one significant supporter, as the company only raised its average purchase price to $66,423 per BTC. Metaplanet is still a small-scale holder with 2,888 Bitcoins, with an average price of $83,049. Both companies give some hints about a possible floor price for BTC. 

The latest market capitulation arrived with predictions for an even bigger dip, as low as $70,000 to $50,000. For now, Bitcoin also moves to liquidate some of the newly placed short positions, which started another trek toward $90,000.

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