In a startling decline, Bitcoin plummeted 4% below its average purchase price, sparking potential panic among short-term holders, who, according to analyst James Check, are now facing a 3% unrealized loss.

Recent Bitcoin Slide Triggers Alarm Among New Investors with Below-Cost Trading

According to an on-chain analyst (via Cointelegraph), Bitcoin trades below the average purchase price paid by short-term holders, which could lead to "panic" due to unrealized losses.

"These recent buyers are statistically the most likely to panic," analyst James Check, known as "Checkmatey," said in a May 1 report.

"What a nuke we have on our hands to open the month of May," Check added, referring to Bitcoin briefly plummeting 8% below a critical support level to $56,814 on May 1, according to CoinMarketCap data.

Bitcoin's recent price decrease brought it to its lowest level since February, which is noteworthy for short-term investors, those who have held for less than 155 days and paid an average price of $59,600 per Bitcoin.

Even if the price had marginally rebounded to $57,631 at publication, short-term investors still had an average 3% unrealized loss.

Bitcoin's current price is 4% lower than 24 hours ago. CoinGlass data shows that the substantial decline resulted in the liquidation of $100.27 million in long bets.

A crypto sell-off triggered its price decrease as market participants awaited the Federal Reserve's interest rate announcement. The announcement revealed that the existing high interest rates would remain unchanged, as analysts predicted.

Check suggested that, while retaining an unrealized loss is not ideal, short-term Bitcoin holders have experienced this before.

"Most importantly, breaking the [short-term holder] cost basis isn't the end of the world, nor the end of the bull market. It doesn't help…but it is and has been recoverable," he wrote.

On-Chain College Suggests Potential Bullish Trend Despite Bitcoin's Recent Price Fluctuations

According to a May 1 X post from crypto trading resource On-Chain College, short-term holder cost basis often serves as support during bull markets and resistance during bear markets. However, it identified a few potential occurrences that will not indicate "the bull market is over."

A "quick move" to $59,600, roughly 2.2% above Bitcoin's current price, would be "bullish," the On-Chain College claimed.

This follows a similar pattern from June 2023, when the price fell below the cost basis and swiftly recovered before a substantial increase. On-Chain College also noticed that when Bitcoin's price fell a few months later, in August 2023, it remained erratic and below the short-term cost basis for some years.

This implies that a "sustained period" below the cost base may potentially indicate a bullish trend, according to On-chain College.

Photo: Microsoft Bing