Marking the major shakeup as short-term sellers capitulate and big holders gear up for the next BTC move
Bitcoin recently saw a dramatic price decline from its flashy all-time highs near $126,000 to a swift correction down to around $80,000. This sharp drop wiped out billions in leveraged bets, triggering panic selling and reshuffling who holds the coins. Meanwhile, traditional finance is warming up to crypto, with Vanguard flipping its stance to let millions trade crypto-linked funds. What does this mean for the Bitcoin market structure, and are we close to a lasting bottom? In this article, we'll break down on-chain data, analyze holder behavior, and explain what signals investors should watch next.
Understanding The Impact of Leverage on Bitcoin’s Sell-Off
Leverage is a double-edged sword. When traders borrow to amplify their Bitcoin bets, gains can soar — but losses multiply too. When the price moves against highly leveraged traders, exchanges forcibly close these positions through liquidations, which means forced selling into the market.
What triggered the recent crash? On November 21st, over $2 billion in leveraged BTC positions got liquidated in a cascade. This selling pressure cascaded lower because many traders were crowded on the same side. It's a vicious cycle: forced selling pushes prices down, triggering more liquidations, and dragging price further.
While leverage liquidations happen off-chain on centralized exchanges, their effects are visible on the blockchain. These liquidations spook the broader spot market, causing even non-leveraged holders to panic sell. On-chain, this looks like rising realized losses — coins sold at a price below their original purchase price.
On-Chain Data Shows Panic Among “Weak Hands”
The term weak hands refers to investors who bought recently and lacked conviction to hold through volatility, selling at losses during steep price dips.
- Realized losses surged to levels not seen since the FTX crash in 2022 — pointing to intense capitulation among short-term holders.
- BTC sent to exchanges spiked to about 9,000 coins in a day, with large deposits (100+ BTC transfers) accounting for 45%.
- The average deposit size hit 1.23 BTC in November, the highest in almost a year.
These moves suggest significant repositioning by bigger players during the sell-off, not just small-time traders’ panicked selling.
The Market Struggles to Find Firm Support After the Crash
After the initial shockwaves subsided, Bitcoin remains locked in a fragile trading range between $81,000 and $89,000. Liquidity dried up, and realized losses stayed high — signaling the market is oversold without fresh buying conviction.
By early December, another $1 billion in liquidations dragged prices further to about $84,000. These liquidation cascades aren’t just price events, they restructure who holds coins.
Key on-chain metrics from Glassnode highlight:
- The short-term holder profit/loss ratio collapsed to 0.07x, meaning recent buyers were severely underwater and likely distressed.
- For the market to feel stable again, BTC would need to hold prices in a recovery zone between $96,000 and $106,000, where many heavy investors have their average cost basis.
- Below $96,000, over 25% of total supply is underwater, making rebounds weak and prone to selling pressure.
Data Callout:
7.1 million BTC are currently sitting at unrealized losses, the highest since September 2023, showing many holders are below their purchase price and may still be vulnerable.
Why Price Bounces Face Resistance
Short-term holders’ behavior largely explains why price rallies struggle to hold.
- The Spent Output Profit Ratio (SOPR) for short-term holders dropped to 0.93 during the recent decline, showing they’re selling coins at a 7% loss on average.
- This kind of capitulation means many recent buyers lack conviction and are quick to sell once price nears their entry level.
- The result? Every rally meets a “wall of sellers,” causing frustrating pullbacks.
What’s Next? Are We Nearing the Bottom?
Though weak hands are capitulating, smart money — whales and long-term holders — are absorbing these coins at lower prices. Positive capital inflows around $8.7 billion monthly (albeit down from July’s $64 billion peak) suggest buyers aren’t abandoning the market.
But the market structure remains fragile. Holding above the $96,000 key level could mark the start of confidence returning, while failure to do so leaves BTC vulnerable to further drops.
Risks / What Could Go Wrong?
- Renewed leverage stress: Another liquidation cascade could spur more panic selling.
- Macroeconomic shocks: Interest rate changes, regulation, or broader market turmoil can depress prices.
- Lack of fresh capital: A sustained drop in capital inflows risks turning the rally attempts into dead cat bounces.
- Behavioral shifts: If short-term holders lose hope, more capitulation can amplify volatility.
Actionable Summary for Investors
- Recent liquidations wiped out billions, forcing weak hands to sell at a loss.
- On-chain data shows short-term holders are still under pressure and mostly underwater.
- BTC’s recovery zone lies around $96K to $106K — staying above is key for stability.
- Whale activity and ongoing capital inflows hint that the bottom may be forming.
- Watch leverage levels and solved resistance at $96K to anticipate the next major move.
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Frequently Asked Questions (FAQs)
Q1: What causes Bitcoin liquidation cascades?
Liquidation cascades occur when many leveraged positions are forcibly closed by exchanges due to price moves against traders, causing rapid forced selling that pushes prices lower and triggers more liquidations.
Q2: What does “realized losses” mean in crypto?
Realized losses happen when holders sell coins at a price below what they originally paid, locking in a loss on their investment.
Q3: Why does Bitcoin often struggle to hold price after bounces?
Recent buyers who are still underwater often sell as price approaches their entry level, creating selling pressure that caps rallies.
Q4: How does the short-term holder SOPR metric help investors?
The SOPR indicates if recent buyers are selling for profits (above 1) or losses (below 1), helping gauge market sentiment and potential capitulation.
Q5: Is Bitcoin nearing a long-term bottom?
Signals show weak hands are capitulating and whales are accumulating, but holding above critical price zones around $96K is necessary to confirm a sustained bottom.
Disclaimer: This article is educational and not financial advice. Cryptocurrency investments carry risk and investors should do their own research.
By Wolfy Wealth - Empowering crypto investors since 2016
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Disclosure: Authors may be crypto investors mentioned in this newsletter. Wolfy Wealth Crypto newsletter, does not represent an offer to trade securities or other financial instruments. Our analyses, information and investment strategies are for informational purposes only, in order to spread knowledge about the crypto market. Any investments in variable income may cause partial or total loss of the capital used. Therefore, the recipient of this newsletter should always develop their own analyses and investment strategies. In addition, any investment decisions should be based on the investor's risk profile
