Bitcoin’s doing something interesting, and it might not be good news. A key indicator, the “Supply Stress Ratio,” just hit its highest point since September. Let’s break it down.
Understanding the Supply Stress Ratio
The Supply Stress Ratio is a measure of how much Bitcoin is currently held at a loss. Think of it like this: we can track the price each Bitcoin was bought at (its “cost basis”). If the current price is lower than the cost basis, that Bitcoin is “underwater,” meaning its owner is losing money. The higher the ratio, the more Bitcoin is held at a loss, and the more “stressed” the market is.
A ratio of zero means nobody is holding Bitcoin at a loss – a situation that only happens when Bitcoin hits a new all-time high. Anything above zero means some investors are underwater.
The Current Situation: High Stress
The ratio recently climbed to 0.23, its highest level since September. According to analysts, a ratio above 0.2 usually indicates significant market stress. This is backed up by the fact that the current Bitcoin price is below the average price of Bitcoin held at a loss.
A chart shows this clearly: the ratio spiked recently alongside Bitcoin’s recent price drop. It also shows the average price of Bitcoin held at a profit (blue line) and the average price of Bitcoin held at a loss (red line). The current price sits below the red line, highlighting the current stress on investors who are losing money.
What Does This Mean for Bitcoin?
Bitcoin’s price has been pretty flat recently, hovering around $83,000. But this high Supply Stress Ratio suggests potential trouble. If the ratio keeps rising, it could mean even more downward pressure on the price, potentially signaling a broader shift in investor sentiment. Whether the price will continue to drop or stabilize remains to be seen. A further drop would, of course, push the ratio even higher.
