The cryptocurrency market has been under heavy sell-side pressure, with Bitcoin shedding 28% from its cycle high, while Ethereum and Solana have lost over 50% of their value. 

This steep decline has triggered a wave of realized losses, making it the second-largest loss-taking event of this market cycle, highlighting the depth of the ongoing correction.‍

Rising Volatility Amid Liquidity Squeeze

According to a report by Glassnode, market volatility has surged as global liquidity tightens, reflected in the prolonged uptrend of the US Dollar Index (DXY). Digital assets, which trade round the clock, often act as early indicators of liquidity contraction in financial markets.

Adding to the turbulence, former US President Donald Trump recently announced plans for a Strategic Crypto Reserve, which would include Bitcoin (BTC), Ethereum (ETH), Solana (SOL), Cardano (ADA), and XRP. 

While the announcement briefly ignited a strong market rally, the enthusiasm was short-lived as the market quickly reversed course, turning it into a classic ‘sell-the-news’ event. Prices now trade below their pre-announcement levels.

Bitcoin has shown more resilience compared to other cryptocurrencies due to its deeper liquidity and market dominance. However, Ethereum and Solana have suffered sharp sell-offs, reflecting their vulnerability in volatile conditions.

Bitcoin’s recent weekly drop of 13.9% marks the second-largest decline of this cycle, trailing only the yen-carry trade unwind event of August 5, 2024. Despite this, Bitcoin’s overall 28% drawdown remains consistent with previous corrections, considerably milder than the 30% drops seen in 2017 or the multiple 50% crashes observed in the 2019-2021 cycle.

On-chain data reveals that between February 26 and March 3, more than 150,000 BTC—valued at approximately $14.2 billion—were acquired in the sub-$86,000 price range. This region, where few transactions previously took place, is now being tested for support as investors weigh their options between holding and exiting at a loss.‍

Intensified Selling Pressure and Investor Behavior

Selling pressure has been mounting across all investor categories, with wallets of varying sizes offloading holdings at a rapid pace. Realized losses peaked at $818 million per day this week, making it one of the most intense sell-offs in recent memory, second only to the August 2024 yen-carry trade unwind, which saw losses reach $1.34 billion per day.

Short-term holders (STH), typically newer entrants to the market, have been hit especially hard. The SOPR (Spent Output Profit Ratio) metric, which measures profit or loss upon selling, has turned negative for only the second time in this cycle—an indication of widespread capitulation.

Despite these losses, the market structure remains intact. If SOPR stabilizes around the 1.0 mark, it could signal that investors are defending their cost basis—an encouraging sign often observed in bullish market conditions.

Analysts are monitoring Bitcoin’s price action in relation to critical cost basis levels derived from on-chain data. Three significant levels have emerged as focal points:

$70,000 – The lower boundary of Bitcoin’s “air gap” zone and a crucial support level aligned with the Active Realized Price metric, often a dividing line between bullish and bearish trends.

$92,000 – The Short-Term Holder Cost Basis, a historically pivotal level that, if reclaimed, could reignite upward momentum.

$130,000 – The upper band of the Short-Term Holder Cost Basis, serving as a long-term resistance level for this cycle.

Currently, Bitcoin is trading between the lower support at $71,000 and the resistance at $92,000. A decisive move below $71,000 could open the door for further declines, while reclaiming $92,000 may reinvigorate investor confidence.

Although volatility remains elevated, past market cycles suggest that such corrections are a natural part of broader uptrends. Investors will be closely watching whether Bitcoin can stabilize above $92,000 or if further declines will push the market into deeper correction territory.