TL;DR
- Dramatic drop: In August, Bitcoin suffered its biggest setback due to a “correlation 1” event.
- Short-term capitulation: Bitcoin fell 32% from its all-time high, causing capitulation among short-term holders.
- Liquidity Cleanup: The liquidation in futures and the reduction in open interest reflect a significant cleanup in the market.
In August, financial markets witnessed unprecedented turbulence, characterized by a drastic drop in digital and traditional assets.
This event, known as “correlation 1,” has triggered a massive sell-off in the market, with Bitcoin suffering its biggest pullback of the current cycle, according to a detailed analysis provided by GlassNode Insights.
August has already been a exceptionally eventful month across both equity and digital asset markets, after a “correlation-1” event sparked a major market sell-off. #Bitcoin has been no exception, recording its largest drawdown of the cycle, causing capitulation amongst… pic.twitter.com/o3FsmscNvn
— glassnode (@glassnode) August 7, 2024
The leading cryptocurrency has seen a 32% decline from its all-time high, leading to significant capitulation among short-term holders.
The correction in the price of Bitcoin has brought the asset to critical levels for investor psychology.
The spot price has approached the “Active Investor Price” of $51.2k, an important threshold that reflects the average cost for active investors.
This level is crucial as long-term investors often provide support around this price, and its behavior can indicate potential turning points in the market.
The impact of the event has been accentuated by a significant liquidation of positions in the futures market, with an 11% reduction in open interest in futures in a single day.
This liquidation, which has totaled $365 million, reflects a deep restructuring in the derivatives market and has contributed to the downward pressure on the price of Bitcoin.
From an on-chain data perspective, the “Mayer Multiple,” which measures the relationship between the price of Bitcoin and the 200-day moving average, has dropped to its lowest level since the FTX collapse in 2022.
This indicator suggests an extremely bearish market condition, with the current value standing at 0.88.
Pressure on Short-Term Bitcoin Holders: Cost Basis Analysis
The spot price has approached a standard deviation below the cost level, indicating significant stress among new buyers.
The “Short-Term Holder MVRV”, which measures unrealized loss, has hit its highest level since the FTX collapse, reflecting a point of great financial stress.
In addition, realized losses have seen a significant increase, with approximately $1.38 billion in recorded losses.
This figure represents the 13th largest event in absolute terms, with most of the losses being absorbed by short-term holders.
Long-term holders, on the other hand, have shown relative resilience in the face of market turbulence.
The drastic drop in futures open interest and liquidation of positions suggest that on-chain and spot market data will be essential to assess the recovery in the coming weeks.
Analysts and investors will need to pay attention to these indicators to understand the future direction of the market and adjust their strategies accordingly.
