Main Points
Bitcoin has seen a significant removal of speculators from the market following a “correlation-1” event. Liquidations reached a staggering $365 million, according to data from Glassnode.
Market Correction Insights
In a recent report, Glassnode presented crucial data regarding a mid-cycle correction that resulted in massive liquidations among short-term holders (STH). A notable market downturn, referred to as “Black Monday,” occurred on August 5, impacting both stock markets and digital asset platforms after a “correlation-1” event, as highlighted by Glassnode.
Understanding Correlation-1 Events
A “correlation-1” event typically refers to a scenario in financial markets where assets that usually exhibit little to no correlation suddenly begin to move in tandem, achieving a correlation coefficient close to 1. In simpler terms, during such occurrences, the returns of various assets become highly positively correlated.
On August 5, significant declines were observed in stock and asset markets, with Bitcoin being no exception, as noted by Glassnode. On that day, Bitcoin experienced its largest drop in the current cycle, with prices plummeting from over $58,000 to below $50,000.
Short-Term Holders and Market Pressure
Short-term Bitcoin holders faced intense pressure following the recent price collapse. STHs are defined as entities holding BTC for a maximum of 155 days, while long-term holders (LTHs) retain their assets for over 155 days. STHs are more susceptible to market volatility compared to LTHs, and the events at the beginning of the week further confirm this trend.
Glassnode provided insights into how over-leveraged traders were forced out of the market. Their analysis revealed that STHs are currently experiencing the highest unrealized losses since the FTX collapse, indicating a significant stress point for investors amidst the prevailing market conditions.
Current Profitability Among Short-Term Holders
The assessed percentage of STH supply held in profit shows that only 7% of this supply is currently profitable, a situation reminiscent of the sell-off in August 2023. Glassnode also pointed out that this figure is more than -1 standard deviation below the long-term average for this metric, suggesting considerable financial strain among recent buyers.
Significant SOPR Drop
Another metric noted by Glassnode is the Short-Term Holder Spent Output Profit Ratio (SOPR), which has reached significant lows as new investors have experienced an average loss of -10%. This reflects a capitulation phase, with only 70 trading days ever recording a lower value.
Massive Liquidations in Derivatives Markets
Glassnode also revealed data related to derivatives markets, indicating that a large volume of long positions was forced to close, resulting in a total of $275 million in liquidated long contracts. Additionally, $90 million in short positions were liquidated, bringing the total liquidations to $365 million. This highlights the extent of leveraged speculators removed from the market.
Current Bitcoin Price Status
As of the time of writing, Bitcoin is trading above $57,000, recovering slightly from the price drop experienced on August 5 when it fell below $50,000.
