Digital asset brokerage K33 has highlighted that more than half of the circulating Bitcoin supply is currently being held at a loss, which could signal that the cryptocurrency is approaching a cycle bottom. In a report published on Tuesday, the company revealed that over 50% of Bitcoin’s circulating supply is now trading below its acquisition cost.
Parallels with Previous Market Cycles
K33 notes that in past Bitcoin market cycles, when this threshold was reached, the asset typically found its bottom within weeks. This widely-tracked metric is used by analysts to gauge whether selling pressure is starting to ease, making it a key indicator in assessing the depth of a bear market.
K33 emphasizes that periods when the majority of circulating Bitcoin supply is underwater have historically coincided with the final stages of bear markets, making the current scenario a notable signal for a potential cycle low.
According to K33’s data, after this signal appeared in the 2017 bear market, Bitcoin reached its bottom in 31 days. In November 2018, the low came just 23 days later, while in November 2022, it arrived in approximately 13 days. The 2014 cycle was an outlier, with the bottom forming 101 days after the signal and Bitcoin’s price dropping an additional 25% a year later.
K33 also observes that the rally over the past year has been more muted compared to previous bull cycles, suggesting that the current pullback may not be as severe as those seen in the past.
ETF Flows May Reshape This Cycle
The report points out that significant selling pressure could make this cycle different from previous ones. The impact of spot Bitcoin ETF investors in particular may complicate historical comparisons. As a brokerage and research firm focused on digital assets, K33 regularly monitors both on-chain and derivatives market data for further insights.
Data from Farside Investors shows that spot Bitcoin ETFs recorded net inflows for two consecutive days. On Monday, these products saw inflows totaling $265 million. However, for June overall, net outflows reached $4.51 billion, making it the weakest month on record for these ETF products.
Risk Appetite Index Mirrors Supply Signals
The supply-in-loss metric is not the only indicator pointing toward a potential bottom. The Risk Appetite Index, tracked by Block Scholes, paints a similar picture. This index measures the strength of bullish and bearish trends in digital assets.
Mini glossary: The Risk Appetite Index gauges investors’ tendency to move toward more volatile and higher-risk assets. A sharp downturn in the index signals rising market caution, while a recovery can indicate a renewed willingness to take on risk.
Block Scholes data shows that Bitcoin’s risk appetite dropped to minus 1.27 on July 3 before rebounding. In the eight previous cases studied by the company, the median spot return over the subsequent 100 days after such a reversal was 12%.
A Block Scholes spokesperson stated that historically, these kinds of movements have often paved the way for a larger recovery in spot prices and encouraged renewed allocation to riskier assets like crypto.
Combined, these indicators suggest the Bitcoin market may be nearing a cycle low, but the presence of large ETF-driven flows could influence the timing and severity of any further downward moves. K33 cautions that the current environment is different from previous cycles in several key ways.
In summary, while multiple data points are flashing signs of a bottom, investors should remain aware of shifting market dynamics, particularly around ETF activity and changing risk sentiment. K33 and Block Scholes will continue to monitor these factors as the market evolves.
