Key Points
- Bitcoin’s short-term holder (STH) cost basis is currently at a pivotal $93,460, influencing market sentiment.
- Historically, decreases below the STH realized price have led to substantial market downturns.
Bitcoin’s short-term holder (STH) cost basis is presently at a significant $93,460, making it a crucial point for market sentiment.
A drop below this level could potentially trigger panic selling. Historically, such drops have been the precursor to severe market downturns, particularly among new market participants with thin profit margins.
Historical Precedence
In the 2022 bear market, Bitcoin breached its STH cost basis multiple times, resulting in severe market consequences. For instance, in May, the spot price plunged to $30k while STHs were positioned around $34k, indicating increasing market pressure.
Similarly, in June, Bitcoin fell to $25k against a $32k cost basis. By September, it dropped below $19k while STHs held on to a $27k average. Each deviation below the cost basis triggered sharp sell-offs, mass liquidations, and escalating fear. If Bitcoin falls below the current $93k-level, a similar pattern of volatility could be expected.
Role of Open Interest
Open Interest (OI) plays a significant role in this scenario. As Bitcoin shows bullish signs, increasing OI is considered a positive indication of more liquidity and market activity.
However, when Bitcoin’s price falls, the same liquidity can become a potential risk. More positions to liquidate means a higher risk of a liquidation avalanche, causing prices to spiral down faster.
During the 2022 bear market, as Bitcoin’s price fell from $50k to $16k, the OI remained stubbornly high at $20 billion, indicating heavy leverage. When the support broke, a massive liquidation cascade ensued.
Currently, Bitcoin’s OI is $64.82 billion, the same level it was when BTC was close to $100k. This suggests that the derivatives market might be overheating.
Given Bitcoin’s tendency to surprise the market, monitoring these metrics is crucial. If BTC falls below its STH cost basis at $93k, a possible mass exodus could occur. What might start as a small “dip” could quickly turn into capitulation as OI positions get liquidated together.
