More than 50% of bitcoin supply is underwater; prior bottoms followed within weeks, often after a final leg lower: K33

After a brutal month for bitcoin (BTC) that saw the foremost cryptocurrency drop 28% from a high of around $82,000 to below $60,000, more than 50% of its circulating supply is now underwater, according to research and brokerage firm K33, with more than 10 million BTC last having moved at prices above current levels.

That's up from 30% a month ago. Still, it represents a threshold that has historically been reached only near major bear market bottoms, as selling pressure from profitable holders becomes increasingly exhausted, Head of Research Vetle Lunde said in a new report.

"A large percentage of old coins simply doesn't move, either due to coins being lost or due to coins being held by owners with no intention of ever selling, so they never fall into the 'in loss' bucket," Lunde said. "That has placed a natural ceiling on supply trading at a loss of around 50% to 56% in all former bear markets."

In the 2011, 2018, and 2022 bear markets, bitcoin bottomed within one month of first seeing more than 50% of supply trading at a loss, Lunde noted, though warning that in each case, it only came after one final leg lower, with bitcoin printing a low 15% to 26% below the level it traded at once supply in loss crossed 50%. However, one year out, bitcoin delivered gains ranging from 69% to 359% from the first 50% underwater crossing, he added.

"While not a guarantee, the setup suggests downside may be limited relative to the potential upside over the coming year, strengthening the case for a contrarian bullish bias," Lunde said.

Softer bull, softer bear?

The latest bitcoin selloff finally brought its price back to the 200-week moving average, a level that K33 said has marked every major bear market bottom. It also coincided with bitcoin's relative strength index reaching its lowest level since November 2018, record exchange-traded product outflows — averaging 4,108 BTC per day between May 7 and June 8 — and the Fear & Greed Index falling to an "extreme fear" reading of 8 as sentiment turned extremely bearish.

Another factor may be capital rotation toward high-conviction growth opportunities, including SpaceX's planned IPO, AI firms, and mega-cap tech stocks, Lunde argued.

"No major bear market has ended without BTC touching its 200-week moving average, and this cycle was no exception," Lunde said. "During last week's crash, BTC briefly fell below its 200w MA, reaching a maximum drawdown of 4.29% relative to the average BTCUSD price over the past four years."

While the current drawdown is shorter and shallower than prior cycles, that is consistent with bitcoin's trend of diminishing returns and potentially diminishing downside, Lunde added, reiterating K33's base case that the $60,000 level marks the cycle low, or at least a "highly attractive long-term accumulation zone."