Bitcoin is now trading below the average purchase price paid by short-term holders, potentially causing “panic” due to unrealized losses, according to an on-chain analyst.

“These recent buyers are statistically the most likely to panic,” analyst James Check, known as “Checkmatey,” said in a May 1 report.

“What a nuke we have on our hands to open the month of May,” Check added, referring to Bitcoin (BTC) briefly plummeting 8% below a key support level to $56,814 on May 1, according to CoinMarketCap data.

The recent price drop saw Bitcoin hit its lowest level since February, which is significant for short-term Bitcoin holders — those who have held for under 155 days — as they paid an average price of $59,600 per Bitcoin.

Even though the price has slightly recovered to $57,631 at the time of publication, short-term holders still hold an average 3% unrealized loss.

Bitcoin’s price at the time of writing represents a decline of 4% in the past 24 hours. The sharp downturn led to the liquidation of $100.27 million in long positions over that time, according to CoinGlass data.

Its price decline was driven by a crypto sell-off as market participants awaited the United States Federal Reserve’s interest rate decision, which kept the current high interest rates unchanged, as analysts expected.

Check suggested that while holding an unrealized loss is not ideal, short-term Bitcoin holders have experienced this before.

“Most importantly, breaking the [short-term holder] cost basis isn’t the end of the world, nor the end of the bull market. It doesn’t help…but it is and has been recoverable,” he wrote.

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The short-term holder cost basis typically acts as support during bull periods and resistance during bear periods, explained crypto trading resource On-Chain College in a May 1 X post.

However, it pointed to a few potential events that will not signal “the bull market is over.”

A “quick move” to $59,600, roughly 2.2% above Bitcoin’s current price, would be “bullish,” the On-Chain College claimed.

This is based on a similar pattern in June 2023, when the price dropped below cost basis and quickly rebounded before a significant upswing.

On-Chain College also noted that when Bitcoin’s price pulled back a few months later, in August 2023, it stayed volatile below the short-term cost basis for some time. 

This suggests that a “sustained period” below the cost basis could also signal a bullish trend, according to On-chain College.

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This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.