Bitcoin price recovery possible after record realized losses creates a healthier market

The Bitcoin (BTC) price is showing remarkable resilience at the $17,000 level, and according to data from Glassnode, a number of metrics tracking the pace of sales and the behavior of investors in the chain are beginning to show a reduction in the factors that trigger sharp selling.

The FTX bankruptcy led to a historic selloff that resulted in $4.4 billion in realized Bitcoin losses. By analyzing realized losses with the daily weighted average calculation, Glassnode analysts found that losses on the chain are decreasing.

According to Glassnode, Bitcoin hit a record low in realized profit vs. loss. By the end of the last bull market, realized losses were 14 times larger than profits, which historically coincided with a positive market shift.

The on-chain data also shows that realized losses are decreasing and the Bitcoin price is above the balanced price, and the realized cap is decreasing, removing excess liquidity generated from over-leveraged entities.

Realized ceiling suggests that surplus liquidity is drained

The realized cap is the net sum of Bitcoin capital inflows and outflows since BTC’s launch.

The current realized rate is 2.6% higher than the May 2021 peak, suggesting that Bitcoin’s all-time high has receded and all excess liquidity from bad debt and leveraged units has been drained from the market.

Lately, when bad debt was removed from the ecosystem, a launch pad was established for future bull markets.

According to the analysts:

“The realized rate of 2010-11 saw a net capital outflow equivalent to 24% of the peak. The realized rate of 2014-15 experienced the lowest but still non-trivial capital outflow of 14%. 2017-18 recorded a decline of 16.5% in realized cap, the closest to the current cycle at 17.0%. By this measure, the current cycle has seen the third largest relative outflow of capital, and has now eclipsed the 2018 cycle, which is arguably the most relevant mature market analogue.”

The bottom may possibly be inside

Balanced price and delta price are algorithmic analyzes used to look back at previous bear cycles. In previous bear cycles, Bitcoin’s price has traded between the balanced price and the delta price 3.0% of the time.

The current balanced price range is between $12,000 and $15,500, with the current delta price concentrated between $18,700 to $22,900. Coinciding with previous bear markets, Bitcoin’s price is above the balanced price, finding support at $15,500.

Related: BTC Price Levels to Watch as Bitcoin Holds $17K in Market Open

While a market bottom has yet to be found and a handful of potential downside catalysts remain, chain analysis shows that market participants’ sentiment is slowly moving out of bearish extremes, with the peak of realized losses and forced selling seemingly over.

A tighter view of Bitcoin holders’ cost of acquisition will also make it easier to predict reactions to possible upcoming volatility. A large amount of excess liquidity has disappeared, possibly creating a firmer price floor for a sustainable BTC price recovery.