Bitcoin is currently experiencing a downward trend, struggling against significant selling pressure. Despite a brief glimmer of hope on August 23, the cryptocurrency has been unable to sustain any upward momentum and started the month with a stronger foundation. However, sellers have remained steadfast.
From the daily chart, it is evident that the uptrend momentum is losing steam. The price action is now situated at the lower end of the consolidation range. The immediate support zone for Bitcoin is between $56,500, which marks the lows of July, and around the $58,000 mark, observed around August 27.
Challenges Faced by Bitcoin Holders
As Bitcoin continues to edge lower, fewer investors are making profits at current spot rates. According to an on-chain analyst, there has been a 25% reduction in BTC held at a profit. In numerical terms, this equates to nearly 5 million BTC at a loss, held by various entities worldwide.
This significant amount of BTC in the red, approximately five times the amount held by Bitcoin’s pseudonymous creator, Satoshi Nakamoto, makes the price action more fragile. Although the analyst did not specify the majority holders, if most of these are controlled by short-term holders (STHs), there is a higher likelihood of prices slumping further.
Short-Term vs. Long-Term Holders
STHs are entities that purchased BTC within the last 155 days and mainly include speculators. These addresses tend to offload BTC whenever prices decline, thereby fueling the sell-off. Conversely, if the majority are long-term holders (LTHs), or those who bought over six months ago, it could be a relief for the market. LTHs, which primarily comprise institutions and HODLers, are generally unfazed by short-term price fluctuations and may anchor the leg up toward $66,000 or higher.
Bitcoin Liquidity and Active Address Count Trends
While more BTC holders are currently in the red, another concerning trend is emerging—the Exchange Liquidity Ratio is “very low.” According to an analyst, the ratio, which measures the overall liquidity level across the BTC market, is below the 365-day moving average at spot rates. This indicates that most traders are apprehensive and prefer to stay on the sidelines.
Liquidity tends to rise in an uptrending market but will remain low until there is a rapid shift in trend. However, if prices continue to slump, volatility is expected to spike. In the short to medium term, the effect will be low liquidity as traders wait for a more defined trend.
Falling Active Address Count
Adding to the concerns, the number of active addresses on the Bitcoin mainnet has reached lows not seen since 2024. A falling active address count signifies a general decline in investor interest, leading to low engagement. This trend is worrying as it indicates a potential reduction in market participation and interest.
In conclusion, Bitcoin is currently facing significant challenges, including persistent selling pressure, reduced liquidity, and declining active address counts. These factors contribute to a fragile market environment, with potential implications for both short-term and long-term investors.
