Bitcoin Supply Held at a Loss Suggests Market Nearing Cycle Bottom, K33 Reports

The growing Bitcoin supply held at a loss suggests that the crypto market is nearing its cycle bottom, according to digital asset brokerage company K33.

Over 50% of all Bitcoin (BTC) is currently held at a loss, K33 said in a report published Tuesday.

K33 added that because the past year's bull market was less extreme than previous cycles, the current downturn could also be less severe.

Historically, when more than half of the circulating supply has been underwater, Bitcoin has tended to be in the late stages of a bear market, making the metric one of several indicators analysts use to assess whether selling pressure may be nearing exhaustion.

Percent of the circulating BTC supply in loss. Source: K33

Past Bitcoin cycles bottomed within weeks of the signal

K33 said previous bear markets typically bottomed within weeks of more than half of Bitcoin's supply being held at a loss.

During the 2017 bear market cycle, Bitcoin bottomed 31 days after over 50% of the BTC supply was held at a loss. Similarly, Bitcoin bottomed 23 days after half the supply was held at a loss in November 2018 and about 13 days after the same development in November 2022.

The 2014 cycle was an outlier, as Bitcoin only bottomed 101 days after half the supply was held at a loss. It was also the only cycle in which Bitcoin was lower one year after the signal, falling 25%.

Bitcoin during periods when 50% of the supply was held at a loss and its annual returns table for the following years. Source: K33

However, the report noted that large sellers, such as spot Bitcoin exchange-traded fund (ETF) holders, could make this cycle behave differently from previous ones because of their impact on price.

The spot Bitcoin ETFs registered two consecutive days of inflows, with $265 million on Monday, but saw $4.51 billion in net outflows in June, marking their worst month on record, according to Farside Investors data.

Related: Strategy sells 3,588 Bitcoin for $216M to fund dividends, keeps $2.55B reserve intact

Bitcoin risk appetite signals imminent bottom: Block Scholes

Other indicators are also suggesting an imminent bottom, such as the Block Scholes Risk Appetite Index, which measures bullish and bearish momentum in digital assets.

BTC risk appetite index and spot BTC price. Source: Block Scholes

Bitcoin’s risk appetite fell to a low of -1.27 on July 3 and has since bounced higher, which historically preceded a median spot return of 12% over the following 100 days, according to the eight prior instances identified by Block Scholes.

“Historically, such a move has preceded a more bullish outperformance in spot prices and could lead to further allocation towards risk assets such as crypto,” a spokesperson for Block Scholes told Cointelegraph.