Bitcoin’s Long-Term Holders Show Signs of Strain After February Sell-Off

In brief

• Bitcoin’s long-term holder accumulation during February’s dip is weaker when compared to FTX, LUNA Crash.
• Still, a key metric has flipped for the first time since May 2022, signaling veteran holders are under pressure and realizing losses.
• CLARITY Act, more Fed rate cuts, and sustained ETF inflows are key catalysts that could trigger a recovery, Decrypt was told.

Bitcoin’s long-term holders are buckling under pressure following this month’s sell-off, amid signs of a relatively weaker accumulation trend that could trigger a deeper correction. February 6’s dip to $62,800 imposed overhead pressure on long-term holders comparable to the May 2022 LUNA crash, marking a “rare shift in conviction typically seen in deeper stages of bear markets,” Glassnode wrote in a Telegram note on Monday. Meanwhile, the 7-day exponential moving average of the Long-Term Holder Spent Output Profit Ratio (SOPR) fell below 1, a sign that veteran investors are now realizing losses. 

Long-term holders are the market’s strongest hands and have typically served as the last line of defense in previous cycles, helping form cycle bottoms as capitulation forced wealth transfers.  When such cohorts are underwater, the question arises: where is the next floor? Glassnode points to $54,000 as the next critical support level. Recent macro data has done little to clarify the path forward. The U.S. added 130,000 jobs in January, dampening expectations of a rate cut and sending risk assets lower. Inflation slowed to 2.4%—but the print failed to trigger a recovery rally from Bitcoin.

Markets still assign a 90% probability that the Federal Funds Rate will remain unchanged in March, per CME’s FedWatch tool. Still, not everyone is convinced the floor will give way.  Sean McNulty, APAC derivatives trading lead at FalconX, is arguing for the contrarian case that $60,000 will hold as the cycle floor in the near term, citing “healthy buying flows.” “This level has been defended by a massive wall of buyers who recently absorbed the capitulation of short-term holders,” he told Decrypt. Extreme market pessimism during the recent drop—and the sell-off lacking a systemic blow-up like FTX—are reasons McNulty believes a further decline is unlikely. The recent drawdown was “orderly deleveraging” that led to excess speculative capital rotating out of crypto without structural failure, he said.