Bitcoin Supply Overhang Signals Volatility Risk Ahead

According to analysis by CryptoQuant community analyst Maartunn, the Bitcoin ‘Supply In Loss’ metric has surged to encompass approximately 6.6 million BTC. This on-chain indicator works by examining the transaction history of each token in circulation to determine its last transfer price. If that historical price is higher than the current spot price, the token is counted as being in a state of loss. The metric’s value had shrunk to zero as Bitcoin’s price set its all-time high above $126,000 in October, but the subsequent market downturn has caused a sharp reversal.

The current figure of 6.6 million tokens underwater is not just a large nominal amount; it represents about one-third of the entire circulating Bitcoin supply. This scale of unrealized loss is significant, with Maartunn noting it represents the highest degree of pain in the market since 2023. The metric provides a clear, data-driven snapshot of investor sentiment and potential pressure points within the market, moving beyond price charts to reveal the underlying cost basis of the supply.

To understand where this selling pressure might materialize, Maartunn also highlighted the UTXO Realized Price Distribution (URPD). This indicator provides a detailed map of how much Bitcoin was last acquired at various price levels throughout the asset’s history. The URPD chart reveals that the supply currently in loss is not evenly distributed but is concentrated in specific price bands above the current spot level.

The analysis shows that some price levels carry a particularly prominent degree of supply, while others are notably thin. These dense clusters of supply represent concentrations of investors who bought in at those higher prices and are now sitting on losses. As Bitcoin’s price, which has recovered to around $88,600 in the past day, attempts to climb, these clusters become critical zones to watch. They represent price levels where a large number of investors could potentially break even.

The core risk identified by the on-chain data stems from investor psychology. Investors holding assets at a loss typically anticipate a return to their cost basis so they can recover their initial investment. However, once this breakeven point is reached, a portion of these investors often decides to exit the position, fearing that the price may decline again and lock in a new loss. This behavior can transform large supply clusters above the spot price into potent sources of selling pressure.

Given that a substantial one-third of the supply is currently underwater, any venture by Bitcoin’s price back toward these higher levels could be met with significant selling. This dynamic creates a clear mechanism for increased volatility. The selling from investors eager to exit at breakeven can act as a resistance, potentially halting or reversing upward price movements and triggering price swings. The scale of the Supply In Loss suggests these volatility triggers are more substantial now than they have been for over a year.

While the data points to clear overhead resistance and volatility risks, it does not predetermine market direction. It instead highlights the technical and psychological hurdles Bitcoin must overcome in its recovery. The interplay between the current spot price, the dense supply clusters mapped by the URPD, and the underlying investor sentiment captured by the Supply In Loss will be crucial in shaping Bitcoin’s price action in the near term.