Bitcoin In The Danger Zone

Bitcoin Under Water

At the time of writing, Bitcoin is trading at $105k and 15% off the all-time high of $124k.

More significantly, it is now trading below the critical support level at $108k.

The $108k level was important because that was the short-term cost basis.

Approximately 40% of all the dollars that have ever been invested in BTC are currently held in the 90k to $108k zone.  

It is now clear that the loss of confidence triggered by the liquidation event last Friday was severe enough to trigger a significant correction to the downside.

A deleveraging event of the magnitude and scale experienced last week has historically broken sentiment and triggered a bear market.

So is BTC spiralling toward a bear market?

The on-chain metrics are signalling that BTC is at a critical pivot point. While there is potential for upside momentum, investors should exercise caution and take time to understand the risk to the downside.

Considering the worst-case scenario now will help in avoiding making emotional decisions.  

So what are the key levels to watch?

The $100k level is the long-term average of where the Market Value to Realised Value Ratio (MVRV) trades.

Ideally, bulls need to step in and support BTC within the $100k and $108k zone.

If BTC drops below $105k, then half of the investors who bought in this zone will incur losses.

The number of investors sitting on unrealised losses increases significantly the closer BTC gets to $100k.

Approximately 60% of all the dollars invested in BTC were invested at 100k or more, and at $100k, approximately 5% of the BTC market cap will be an unrealised loss.

If $100k fails, then there is a real risk that investors start to believe that we have seen the BTC cyclical top, and that sets up the potential for a further cascade to the downside.

A cascade from $100k to $80k will likely happen quickly.

Not many investors accumulated in the $80k to $100k zone, and it could act as an air pocket.

The $80k level, from a probability perspective, is likely the low. (The cost basis for Strategy is $80k, and the cost basis for IBIT holders is $79k).