Bitcoin Bears Just Got Trapped

Added: 2026-05-12

[00:00:00]Bitcoin just reclaimed the level that usually separates recovery from rejection. But the interesting part isn't the breakout itself. It's what's happening underneath the surface.

[00:00:10]Realize losses are fading. Long-term holders aren't heavily distributing and futures traders have been leaning the wrong way again. So, the question now is simple. Is this the start of a real regime shift? Or is it just another failed rally into resistance? So, let's get into it.

[00:00:27]We've been rallying quite convincingly here and there are a lot of levels that people are watching right now. But for me, the two most important levels on the chart are no doubt the short-term holder realized price and the true market mean.

[00:00:39]These are probably the two most critical onchain cost basis levels that you can get your head around because they tell you where the different parts of the market are positioned and where they're likely to be selling at a profit or a loss and where Bitcoin tends to flip between bullish and bearish regimes.

[00:00:53]Now, a very quick recap. The short-term holder realized price is the market's pressure point. It's the average cost basis of coins that have been bought in roughly the last 5 months. So basically the newer most reactive part of the market. And when Bitcoin trades below it, recent buyers are underwater and stress builds and rallies often get sold into just to break even. But when the price reclaims it and then holds it, those same buyers move back into profit and the pressure eases and the market can start behaving less like a bare market and more like a recovery. And the true market mean is a cleaner, more structural version of the market's cost basis or the realized price. And this tells us the average acquisition cost of the entire Bitcoin supply. But the problem is is that not all supply is economically active. Some coins are lost, some are permanently dormant and some have just effectively left the market altogether. So the true market mean adjusts for that and it strips out the dead weight and gives us a better estimate of the cost basis of actively held Bitcoin. And that's why this zone here matters quite a lot. Currently, both of these levels are sitting around the $78 to $79,000 region. So, this area is decisive. We've now firmly broken above this level, which is exactly what the bulls wanted to see. But the important thing is now is not just the breakout itself, but it's where the Bitcoin can actually hold above it.

[00:02:11]Because breaking above a key cost basis level is just step one. The real confirmation comes when price comes back, retests that level, and refuses to break back below it. And that's where the resistance starts to become support.

[00:02:23]And that is when the market begins to prove that the reclaim is real rather than just another failed rally into resistance. So from here, I don't want to see Bitcoin reject straight back below the 78 to $79,000 zone. We want to see this area hold as strong support because if it does, then structurally, this would be a very important signal that the market is beginning to shift away from this bearish regime that we've been in for a while now. Now, one of the key ways we can assess whether the shift is actually happening is by looking at the realized profit and loss. And this is one of the most important onchain concepts for you to understand because this is not just about unrealized or paper gains or losses and essentially what people are feeling. This is the profit and losses actually been actioned on chain. Or in other words, when coins move, we can compare the price at which they were last acquired to the price at which they're now being spent. And if they've moved at a higher price than their acquisition cost, then it's realized profit. And if they've moved at a lower price than their acquisition cost, then it's realized loss. And what we're looking at here is the net realized profit and loss. So that means that if we summed all the profit realized on chain on a particular day and then summed all the realized losses on chain on that same day, what is the net result? And if the result is positive, meaning more profit is being realized than losses, it's shown in green. And if the result is negative, meaning more losses than profits are being realized, then it's shown in red.

[00:03:44]What we can see here when we zoom in is that since December of last year, Bitcoin has been in a net realized loss regime. And that's very typical for bearish markets because in bearish regimes, investors become exhausted.

[00:03:56]They buy higher, price falls, and eventually they capitulate. They sell even when they're at a loss, and they stop caring about the long-term thesis and just want the pain to end. And that's exactly why realized loss regimes are so important. They show you when the market is flushing out the weak hands and they show you when buyers from higher levels are giving up and they often appear near the late stages of bearish phases. But what is interesting right now is that we've flipped positive for the first time in over 5 months.

[00:04:23]Meaning for the first time in this entire bearish phase, people are now realizing more profits than losses on chain. And that is incredibly constructive because this usually is one of the first signs that the market is healing again. And it tells us that price has recovered enough that more participants are now able to sell at a profit rather than a loss. And it also tells us that the force capitulation behavior that we typically see is slowing down. And when we look back at previous bare markets, this exact type of flip has often marked the recovery phase. It does not mean that price couldn't go further from here. And it doesn't mean that we instantly go back into bull market mode, but it does tell us that the realized behavior of the market is changing. And there's something really important to note when we zoom out. In US dollar terms, this was the largest loss taking bare market in Bitcoin's history. The scale of realized losses in dollar terms was enormous. But in BTC terms, it was actually one of the most subdued. And that might sound strange at first, but it makes sense when you understand how much Bitcoin has matured. Bitcoin is obviously a much bigger asset than it was in previous cycles and the market cap is much much larger. The investor base is larger and the institutional presence is larger too. So when Bitcoin falls today, the dollar losses look absolutely massive compared to previous cycles. But when you measure those losses in BTC terms, the actual amount of Bitcoin being capitulated is not as extreme as previous bare markets. And that's why it's so important to view these metrics in both BTC terms as well as USD terms. Now the next obvious question is are we due for a bounce from these levels or has the rally already gone too far? And one of the best ways to assess this is by isolating the profit taking behavior itself because when Bitcoin rallies hard, you normally expect profit taken to increase. That is natural. People who bought lower start to take gains and older coins begin to move and both the short-term traders and the long-term holders lock in profits.

[00:06:18]And when profit taking becomes too extreme, it pretty much always caps the rallies. We usually see this metric spike when the market gets overheated.

[00:06:26]That spike tells you that a lot of the supply is being sold into the rally and eventually that selling pressure can overwhelm the demand. But what's really interesting right now is that despite this strong rally, there's been very very minimal profit taken so far. And again, that's very positive because this rally has not yet produced the kind of major profit taking spikes that typically cap moves. In other words, Bitcoin has moved higher, but holders are not rushing to sell into it in size.

[00:06:52]And that suggests that the rally still maybe has room to run because the supply response has not yet become aggressive.

[00:06:58]Now, when we look at which cohort is actually taking profit right now, the top cohort appears to be very new coins, specifically coins that have only been around 1 week to 1 month old. And that makes sense. These are the participants who bought very recently, probably in the 60s and 70s, and are now capitalizing on the latest move in price. Now, these are the short-term traders, not necessarily the deep conviction holders. But even when we isolate those 1 week to one month old coins, the amount of profit taking is still a drop in the ocean compared to the normal levels we see from these traders during the major Bitcoin rallies. And again, that's very constructive because if the majority of profit taken is coming from these very young coins and even if that profit taken is relatively low, then the broader market is not distributing heavily yet. And that's exactly what you want to see in an early recovery or early expansion phase. You want price to move higher without excess profit taking. You want the market to absorb the supply cleanly and you want to see these holders remain patient rather than panic selling into the first meaningful rally of the cycle. Now the major talking point as always is long-term holders because long-term holders are normally the cohort that matter most at major cycle turning points. They tend to accumulate during weakness, sit through the volatility, and then distribute into strength. And historically, they're often the ones that mark the later stages of bull markets because when long-term holders begin aggressively taking profits, they effectively transfer supply to the newer, more emotional buyers. And this cycle, the long-term holder distribution happened in three major stages, which is different in itself. The first stage was during April 2024 during the rally to $70,000. And that was the first major wave of profit taking from long-term holders as Bitcoin pushed into new highs and strong demand arrived again. And the second stage came during the November 2024 rally towards $100,000 where again we saw a meaningful wave of long-term holders taking profits into strength.

[00:08:58]And then the third major stage came just after the cycle peak in November 2025 where we saw mass profit taking and distribution for long-term holders despite a decrease in price which contributed to a huge sell-off as those older coins exited the market. But what's encouraging right now is that despite this recent rally, the level of long-term holders realizing profits is still very subdued. And that is a big deal because if long-term holders were aggressively selling into this move, I'd be much more cautious. That would suggest that the stronger hands are using this rally as exit liquidity and that lower prices are very likely ahead.

[00:09:33]But right now, that's not what we're seeing. Long-term holder profit realization remains relatively contained. And that means that the most experienced part of the market is not yet heavily distributing into this rally. And that leaves the door open for further upside if, and a big if, demand continues to come in. Now, switching over to the loss side of the equation, there is one thing that I still want to see slow down a little bit if this rally is going to continue properly. And that is the long-term holders that are selling at a loss. And at first, that might sound a bit confusing because you might think, how can long-term holders be selling at a loss right now? Aren't the long-term holders the smart money that have been sitting on coins for years? But as we know, a long-term holder is defined by coin age. So once a coin reaches about 5 months old, it's, as I say, graduates into long-term holder status. That means that some of the coins now classified as long-term holder supply might not belong to the ancient high conviction Bitcoiners who bought donkeys years ago. They may belong to the people who bought near the previous cycle top, held through the decline, and have now just simply aged into long-term holder status, and are now finally selling into this rally at a loss. So, it's not exactly the smartest money. It's more like the delayed capitulation from people who bought too high, held through the pain, and are now using this rally as an opportunity to just get out. Now, to be clear, the figure that we're seeing right here is nowhere near the scale of previous bare markets where there was broad capitulation across the board. But we still need this behavior to drop off if Bitcoin is going to punch through to further all-time highs from here.

[00:11:06]Because if every rally is met with underwater holders selling into strength, it creates overhead supply and it slows the market down and makes every breakout that bit harder. So, this is one of the key things I'll be watching.

[00:11:18]The rally is constructive, but I want to see long-term holder loss realization continue to fade, and that would suggest that the last pockets of for selling and delayed capitulation are finally being absorbed. And if you want to see every chart that I use, including the ones that I'm using today, then go check them all out at onchainmind.io. io. I've got a whole host of new features rolling out over the next few weeks, and I'm running a 7-day free trial currently, so go check it out if you're interested. Now, finally, I want to end on some derivatives action, more specifically, futures, because this has been one of the most interesting elements of this entire rally. And the first thing I want to show here is the funding rates. Now, funding rates tell us which side of the perpetual futures market is more aggressive. When funding is positive, as shown in green, longs are paying shorts.

[00:12:04]And that usually means the market is leaning long and traders are willing to pay to maintain bullish exposure. And when funding is negative, shown in red, shorts are paying longs. And that means that the market is leaning short and traders are willing to pay to maintain bearish exposure, which is quite a rare signal. And for the first time in about a year, we have seen negative funding rates. And that is actually during this rally. And that's extremely interesting because it means that despite Bitcoin rallying, the futures market is essentially still betting on price going lower. And if you spend any time around funding rates, you know that they're often one of the best counter trend signals that we have. When funding gets extremely positive, it means everyone is leaning long and traders not only optimistic but euphoric. And that is often one of the best times to be cautious, hedge, or even think about taking the other side. And when funding gets extremely negative, it usually means the opposite. Traders are fearful and are leaning max short. And historically, going long when funding is negative has often been a very strong signal. And that's why this is one of the most interesting signals I've seen in a while. Because Bitcoin has been rallying while the futures market has still been leaning bearish. Price has been moving against the crowd. And when too many traders are short and the price keeps rising, it creates the conditions for a squeeze. And a squeeze is shorts are forced to close by buying back their future positions. And the buying pressure pushes futures even higher. And if spot demand is also present, then this can transmit the pressure into the underlying market. And that is when a rally can accelerate quickly. Not because everyone suddenly turns bullish, but because the bearish positioning is being forced out. But this all sounds too great. So I want to show you the other side of the coin to keep my view balanced here. The final metric I want to look at is the liquidation dominance again in futures. And the liquidation dominance essentially looks at the total liquidations and asks a simple question.

[00:13:59]Are long or short positions being liquidated more? And on this chart, the red points mean that longs are getting liquidated more aggressively. And that usually happens when price is falling and leverage longs are being flushed out. And the green points is obviously the opposite where shorts are getting liquidated more aggressively. And that usually happens when price is rallying and short sellers are being forced to close. And what we can see here on the smooth trend is that we've just seen the largest concentration of short liquidations since the beginning of the last bull market. And that is quite significant. It tells us that a large part of this rally has been driven by shorts getting squeezed. Traders were positioned for more downside and price moved against them and then they were forced out. Now that does not mean that Bitcoin cannot continue going higher from here. It obviously can. In fact, strong rallies often begin with this exact kind of disbelief and short squeeze behavior. But what it does mean is that we should be realistic. When you get a very large concentration of short liquidations, it can also mean that some of the immediate fuel for the rally has already been used. So if a lot of the shorts have already been flushed out, then the market may need new demand to continue higher. So this normally indicates that there might be a slowdown, consolidation, or even a retest at some point, even if the broader structure does remain constructive. And this is why the $78 to $79,000 region is so important. If Bitcoin can hold above the short-term holder realized price and the true market mean while the profit and loss profile continues improving and funding stays neutral or negative, then the setup remains very constructive. But if Bitcoin loses that level again and starts seeing renewed long-term holder losses and profit taken into resistance, then the rally becomes much more questionable. So for me, the summary is Bitcoin has reclaimed one of the most important cost basis zones in the entire market and profit taking remains surprisingly low despite the rally.

[00:15:48]Long-term holders are not heavily distributing yet and funding rates have turned negative during a rising market, which is historically a very powerful contrarian signal. But despite all that, futures liquidations show that a lot of the shorts have already been forced out.

[00:16:04]And all of this is very constructive, but the market still has to prove itself. The key now is whether Bitcoin can hold this 78 to $79,000 zone as support. And if it can, then this starts to look like less like a bare market rally and more like the early stage of a proper recovery. But if we reject back below it, then all of this becomes much less convincing. So this is the battleground. The reclaim has happened.

[00:16:29]The onchain structure is improving and the derivatives market as always has been leaning the wrong way. But now Bitcoin needs to do the most important thing. It needs to hold. So I hope you all found this useful and as always I'll catch you in the next one.