Delving into Glassnode’s most recent On-Chain analysis, it is suggested that Bitcoin (BTC) must stay above the Short-Term Holder (STH) cost basis to avert potential downward trends. The STH cost basis has traditionally been a vital indicator distinguishing the local bull and bear market phases, making it an important factor for observers to consider.
Observing Bitcoin’s Relationship with STH Cost Basis
Since February’s start, BTC has maintained a tight trading range between $93,000 and $98,000. Despite numerous significant global events, including proposed trade tariffs from former US President Donald Trump, Bitcoin has managed to weather these storms.
However, Bitcoin is not impervious to changing market sentiments. Glassnode’s analysis underscores the need for BTC to maintain a level above the STH cost basis, estimated at around $92,500, to keep its bullish momentum in the long run. The report suggests that BTC currently stands at between $1,000 and $5,000 above the STH cost basis. Historical data reveals that the STH cost basis has often served as a pivot point, determining whether average recent purchasers experience unrealized profits or losses. If BTC were to dip below $92,500, it would signify unrealized losses for the average short-term holder, potentially sparking a sell-off. Conversely, trading above this level could boost bullish momentum by having most short-term holders profit.
A chart included in Glassnode’s report illustrates this relationship. It shows that when BTC hits a new all-time high (ATH) and subsequently corrects, it tends to reach the lower limit of the STH cost basis model. The chart further indicates that historical BTC downtrends have generally stretched to about -1 standard deviation below the STH cost basis, suggesting BTC could drop to as low as $71,600, according to the current market cycle.
Cryptocurrency Market Nears Crucial Turning Point
Glassnode’s report highlights that the crypto market is in an accumulation phase similar to that seen in May 2021. Although there was aggressive BTC accumulation by new investors in April 2024, the current cycle’s STH supply uptrend aligns more closely with that of May 2021.
Subsequently, the market is nearing a critical juncture, possibly marked by significant price fluctuations. The report further explains that sustained buying pressure can help Bitcoin establish a new range above ATHs. Conversely, a lack of this pressure could lead to a deeper correction driven by distribution, akin to previous post-ATH phases. Likely drivers of this scenario would be recent buyers panicking as their newly acquired coins transition from profit to unrealized loss.
Despite potential pitfalls, BTC enthusiasts can be optimistic as the expected decline in the US dollar’s value is likely to favor the leading cryptocurrency. In parallel, BTC sentiment appears to be recovering after the decline in memecoin hype, with BTC trading at $97,100 at the time of writing, marking a 1.2% increase over the past 24 hours.
FAQ 1: What is the STH cost basis?
The STH (Short Term Holder) cost basis is a benchmark derived from the average cost at which short-term holders have purchased Bitcoin. It serves as a pivotal point that influences whether new buyers will experience unrealized gains or losses.
FAQ 2: How can fluctuation in Bitcoin’s value influence market behavior?
If Bitcoin’s value falls below the STH cost basis, it could trigger a sell-off as new investors face unrealized losses. On the other hand, if it stays above this benchmark, it can reinforce bullish momentum, as most short-term holders would profit.
FAQ 3: What is the significance of Bitcoin staying above the STH cost basis?
Staying above the STH cost basis is crucial for Bitcoin to maintain its bullish momentum. A dip below this level could signify that the average short-term holder is facing an unrealized loss, potentially triggering panic selling.
FAQ 4: How does the expected decline in the US dollar benefit Bitcoin?
If the US dollar declines, it can potentially boost Bitcoin. This is because Bitcoin, like most cryptocurrencies, is typically inversely correlated with the US dollar, meaning as the dollar falls, Bitcoin value may rise.
