Bitcoin Supply in Loss Territory Nears 42% as Leveraged Longs Raise Liquidation Risk

Investor sentiment in the Bitcoin market is deteriorating, while excessive leverage in derivatives is increasing the risk of further declines, according to AMBCrypto on May 29.

About 42% of Bitcoin's circulating supply has fallen into loss territory, the crypto media outlet reported. That means more than 8 million BTC are trading below their purchase price.

Bitcoin has dropped about 4.78% over the past week, breaking below a key support level near $73,000. Its intraday low reached $72,000. On-chain data is also pointing to weakness, adding to market anxiety.

A large share of the supply now in loss is likely held by short-term investors who bought near recent highs. Sentiment is moving quickly into "fear" territory, the report said.

During periods of fear, long-term investors and institutional money often step in to buy at lower levels and help stabilize prices. This time, however, institutional flows appear to be behaving differently.

BlackRock moved about $157 million worth of Bitcoin when the token was down roughly 5% in a single day, according to on-chain analytics platform Lookonchain. AMBCrypto viewed that as institutional capital moving during a period of rising market stress.

Still, the medium- to long-term trend has not fully broken down. Bitcoin is up about 8% this quarter and could still post its strongest quarterly return since the second quarter of last year. Even so, softer on-chain indicators and macroeconomic uncertainty are clouding the outlook for a rally like last year's.

The main concern is the derivatives market. Aggressive leveraged long positions are continuing to build even as the broader market signals weakness.

One Bitcoin whale recently opened a long position worth about $30 million using 40x leverage, the report said. The position's liquidation price was about $72,400, not far from current levels.

That has heightened concern that another drop in Bitcoin could trigger large-scale forced liquidations and accelerate losses. "On-chain indicators and investor sentiment are weakening, but greed remains strong in the derivatives market," AMBCrypto said. "If fear continues to spread while leverage stays overheated, the market could face a bigger correction than expected."