Important points:
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Derivatives and on-chain data show a lack of bullish belief as 43% of Bitcoin holders are still in losses despite recent price gains.
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A surge in AI energy demand has squeezed miners’ profits to record lows, forcing large publicly traded companies to offload BTC and pivot to computing.
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Traders face the psychological hurdle of $76,000, the average cost basis for large corporate holders like Strategy.
Bitcoin (BTC) soared to a four-week high on Wednesday, potentially paving the way for a recovery towards the monthly closing price of $78,700 hit in January. Despite the 22% rally from the local low of $60,000 on February 6th, several on-chain and derivatives indicators suggest that bears remain comfortable.
Demand for downside protection through Bitcoin options continues to dominate the market.
Put (sell) options have recently been trading at a 10% premium compared to comparable call (buy) products. In neutral market conditions, this indicator typically ranges from -6% to 6%, and the last observed level was in mid-January, when Bitcoin was trading near $95,000.
While demand for bullish BTC futures remains stagnant, professional traders appear to be worried about further declines. The annualized premium, or base rate, is currently below the neutral threshold of 5%.
The weakness in Bitcoin derivatives reflects a month-long decline in prices after a 32% plunge in the first week of February. However, the bulls’ lack of conviction even as the price moves above $73,000 suggests deeper hesitation. This cautious mood likely stems from the fact that a significant portion of holders are still in the red.
According to Glassnode data, 43% of the supply is currently in losses based on the price of the last coin moved. This percentage of holders incurring losses has jumped from 30% in late January, when Bitcoin was trading at $90,000. Traders fear that investors holding these losses will gradually exit their positions as prices recover, creating sustained indirect selling pressure that could limit further gains.
Another cause for concern comes from the Bitcoin mining sector, which is facing significant pressure due to the rapid increase in demand for artificial intelligence. Rising energy costs and decreasing demand for Bitcoin blockchain registries are pushing miner profitability towards record lows. Several large publicly traded mining companies are pivoting to AI computing and releasing their Bitcoin holdings in the process.
The Bitcoin Hash Price Index, which measures the expected daily value of one terahash per second of hashing power, plummeted to $30 on Tuesday from $39 three months ago. Investors are concerned that miners will become net sellers after a long period of accumulation.
Mining companies that previously maintained strategic reserves in Bitcoin are now reportedly eyeing more lucrative opportunities in the alternative high-performance computing space.
Related: MARA executive denies theory of selling Bitcoin government bonds
Strategy’s $76,000 cost base could be a turning point for Bitcoin momentum
Strategy (MSTR US) remains the leading example of a Bitcoin-centric balance sheet strategy. The company has purchased 720,737 BTC since its initial introduction in August 2020, but faced increased scrutiny after Bitcoin fell below its average acquisition price of around $76,000.
Other publicly traded companies such as Metaplanet (3350 JP) and Twenty One Capital (XXI US) are facing similar valuation challenges under the current bear market conditions.
While Strategy does not face any imminent liquidation risk or lack of cash needed to pay interest on yielding assets like STRC, bears recognize that a price above Bitcoin’s cost basis will encourage equity issuance without diluting current holders.
Essentially, market participants looking to keep prices down have a strong incentive to keep Bitcoin locked below $76,000. Therefore, a recovery towards $78,700 may take longer than expected, but a breakout of that key level could shift momentum in the bulls’ favor.
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