Bitcoin's Long-Term Holders Join Sell-Off, Signaling Late-Stage Bear Market

Bitcoin's highest-conviction holders have joined the sell-off in the cryptocurrency, which could signal the beginning of the end of the ongoing crypto slump, according to Compass Point.

Long-term holders — defined as those who have held onto their coins for at least 155 days, or about five months — were largely inactive from February to April but have turned into sellers in recent weeks, Compass Point analyst Ed Engel said in a note Tuesday.

In the past two days they've sold about $2.4 billion in bitcoin, "which has large implications on BTC's supply/demand balances," Engel said.

He also highlighted that 26% of bitcoin sold in the past 30 days came from investors who bought it above $90,000.

"This cohort of top-buyers had been resilient throughout the bear market; however, they're finally capitulating as BTC approaches new cycle lows," he added. "Top-buyer capitulation is a very common theme in late cycle bear markets. This makes us more confident that BTC's bear market is in late stages."

Bitcoin has been struggling to climb back toward its October record of more than $126,000 as uncertainty around the Iran war has kept the price under pressure. Meanwhile, the stock market has risen to new records. The divergence has investors questioning both of bitcoin's dominant narratives: that it is "digital gold" that should benefit from geopolitical uncertainty, and that it trades like a high beta tech stock.

On Tuesday, bitcoin ETFs registered their 12th day in a row — and longest streak ever — of net outflows, according to SoSoValue. Net assets across bitcoin ETFs fell to $85 billion from $107.8 billion on May 14.

Bitcoin is down 10% week-to-date after some fear-based unloading on Monday — following Strategy's minor sale of 32 coins — triggered a cascade of long liquidations that accelerated the downward pressure.

Still, analysts say Strategy's sale is not a significant factor driving bitcoin's price.

"ETF flows are the primary driver of BTC price appreciation, explaining approximately 45% of weekly return variation, and the best vehicle for tracking investor adoption/appetite," Citi analyst Alex Saunders said in a note. "Recent flows have been negative, and the chances for the passage of a U.S. market structure bill (a potential catalyst for renewed investor interest in our view) are diminishing.

"We expect sentiment to remain lackluster, especially as the divergence with equity performance remains stark, absent positive news on the regulatory front or 'de-basement trade' fears around fiscal position," he added.

— CNBC's Michael Bloom contributed reporting