On Thursday, U.S President Donald Trump rolled back his plans to impose new tariffs on Europe as part of his push to acquire Greenland for the country. This saw Bitcoin [BTC] prices rebound by 1% to reach $90,359. However, this bounce was quickly wiped out.
Bitcoin, which had pushed above the $ 94,500 level last week, tested the same level over the weekend. The short-term market fear around a trade war alluded to no appetite for risk-on assets, with the leading crypto plunging to a low of $87,263.
According to AMBCrypto, while the market mood has been defensive, the aforementioned price bounce was not due to sustained, aggressive buyer demand. There may be still a threat of a transition to bear market conditions.
Explaining the Bitcoin soft capitulation
In a post on CryptoQuant Insights, user Darkfost observed that the number of holders in profit was too small to sustain bullish demand. It was at 71% – Typically seen during a shift to a bear market.
The supply in profit needs to climb above 75% and stay above it to reflect growing market conviction. The early January bounce saw the metric bounce to 75%, but holders chose to take profits and limit losses.
A deeper decline in supply and profit would show that bearish sentiment might be intensifying.
The MVRV evaluates Bitcoin to its “fair value” (realized value) to see if it is overvalued or undervalued. At press time, the MVRV-Z score was at 1.12 – A sign that holders witnessed unrealized profits, but not enough to trigger a mass sell-off.
For context, values below 0 capture bear market capitulation phases. The previous two market tops came when the metric was between 3 and 5.
The spent output profit ratio measures whether coins are being sold at a profit or not. Since late November, the SOPR has remained below 1 for the most part, signaling that holders were selling at a loss. This investor fatigue is the “soft capitulation,” where weak hands exit the market.
If the MVRV Z-score was under 1, it would imply that the market was resetting and the price is close to fair value, or close to the average investor’s cost basis. A score of 1.12 is moderately bullish. Combined with the SOPR under 1 in recent weeks, it hinted that a local price bottom could be forming.
This can change based on macroeconomic developments in the coming months. As things stand, a transition to a full-blown bear market is not yet at hand, though Bitcoin has come close to it.
Final Thoughts
- Bitcoin supply in profit needs to climb past 75% and stay there to suggest holder conviction.
- MVRV and SOPR metrics suggested a local price bottom might be forming.
