Bitcoin (BTC) is showing signs of recovery after experiencing a significant event, reminiscent of the March 2020 COVID-19 crash, according to data from on-chain analytics platform CryptoQuant. The platform recently highlighted a major spike in loss-making unspent transaction outputs (UTXOs), indicating a potential shift in market sentiment.
UTXOs represent the BTC that remains after a transaction is executed on the blockchain. When these UTXOs are valued lower than the price at which the BTC was initially acquired, it indicates a loss. CryptoQuant’s UTXOs in Loss metric tracks the number of UTXOs in a loss state compared to their original acquisition price.
The data currently suggests that there are more UTXOs in a loss state than at any time since March 2020. During that period, BTC/USD dropped by 60% to reach its lowest levels since March 2019. These lows were never seen again. The resemblance in the UTXOs in Loss indicator between the current situation and the black swan event of March 2020 has led CryptoQuant contributor Woominkyu to suggest that Bitcoin may be experiencing or already bouncing back from a curveball selling event.
The UTXOs in Loss chart provided by CryptoQuant demonstrates the increasing number of UTXOs in a loss state. In percentage terms, 38% of UTXOs were in loss by the end of August, a figure that was last seen in April 2020. Woominkyu explains that when a significant number of UTXOs are in a loss state, investors may become more inclined to sell, indicating market anxiety. Conversely, when most UTXOs are profitable, it suggests an optimistic outlook and a stronger holding sentiment among investors.
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Despite the potential selling pressure caused by the increase in UTXOs in a loss state, the overall BTC price has remained range-bound with no clear trend. This lack of direction makes it challenging to determine the next move for Bitcoin. In addition, cost basis data, which examines the acquisition prices of different investor cohorts, reveals that short-term holders start experiencing aggregate losses when the BTC/USD price falls below approximately $27,000. However, there has yet to be a full capitulation event recorded on-chain.
It is important to note that this article is not providing investment advice or recommendations. Investing and trading in cryptocurrencies carry risks, and readers should conduct their own research before making any decisions.
In summary, while Bitcoin is showing some weakness in price, on-chain data suggests that there might be underlying activity driving the market. The increase in UTXOs in a loss state resembles the black swan event of March 2020, raising the question of whether Bitcoin is currently experiencing or recovering from a significant selling event. The number of UTXOs in a loss state indicates market sentiment, with higher numbers suggesting more anxiety among investors. However, the lack of a clear BTC price trend and the absence of a full capitulation event make it challenging to determine Bitcoin’s immediate future. Investors should exercise caution and conduct thorough research before making any cryptocurrency investment decisions.
