The recent drop in bitcoin price has put many short-term holders in the red, according to on-chain data. Nearly 90% of addresses that bought bitcoin in the past three months are underwater, meaning they are holding coins at a loss.
What is underwater?
Underwater is a term used to describe the situation when the current market price of an asset is lower than the price at which it was purchased. For example, if someone bought bitcoin at $50,000 and the current price is $40,000, they are underwater by $10,000 or 20%.

Why are short-term holders underwater?
Short-term holders are those who have acquired bitcoin in the last 90 days. According to data from Glassnode, a blockchain analytics firm, the percentage of short-term holders who are underwater has risen to 88.7% as of August 23, 2023. This is the highest level since April 2023, when bitcoin experienced a sharp correction after reaching an all-time high of $64,895.
The reason why short-term holders are underwater is because they bought bitcoin at higher prices during the recent rally that pushed the price above $50,000 in early August. However, since then, bitcoin has faced several headwinds, including regulatory uncertainty, environmental concerns, and market manipulation. These factors have caused bitcoin to lose more than 20% of its value in less than three weeks.
How does this affect the market?
The underwater situation of short-term holders can have both positive and negative effects on the market. On one hand, it can create selling pressure, as some holders may decide to cut their losses and exit the market. This can lead to further price declines and more underwater holders.
On the other hand, it can also create buying opportunities, as some holders may see the dip as a chance to accumulate more bitcoin at lower prices. This can lead to a rebound in price and more profitable holders.
Additionally, the underwater situation of short-term holders can also indicate the sentiment and behavior of different types of investors. According to Glassnode, long-term holders, who have held bitcoin for more than 155 days, are mostly in profit, as they bought bitcoin at lower prices during the previous bear market. Long-term holders tend to be more patient and confident in the long-term value of bitcoin, and they usually hold on to their coins regardless of short-term price fluctuations.
Short-term holders, on the other hand, tend to be more speculative and emotional, and they usually react to market news and events. Short-term holders are more likely to sell their coins when the price drops or buy more when the price rises, creating volatility and momentum in the market.
What is the outlook for bitcoin?
The outlook for bitcoin depends on various factors, such as supply and demand dynamics, macroeconomic conditions, technological innovation, and regulatory developments. Some analysts believe that bitcoin is still in a long-term uptrend, and that the current dip is a temporary correction that will be followed by a new rally.
Others argue that bitcoin is facing strong resistance and that the recent drop is a sign of a deeper bear market that will last for months or years. They point out that bitcoin has failed to break above its previous all-time high of $64,895 since April 2023, and that it has been trading below its 200-day moving average since June 2023.
Ultimately, the future of bitcoin is uncertain and unpredictable, and investors should be prepared for both risks and rewards.