How is the "bottom structure" of a bear market formed, and where are we now?

Null

Author: Murphy

In recent cycles, analyzing the relationship changes between cost basis and price action is one of the best perspectives to observe BTC bottoming out.

The logic is that when the price enters a certain group of BTC holders’ cost range, the price movement behind it reflects the behavior of that group. Is it “running first” or “holding on”?

If it’s the former, the price will encounter resistance near the cost line; if it’s the latter, the price can smoothly break through the cost resistance. If the price fluctuates around the cost line, it indicates the market is repeatedly entangled and engaged in a tug-of-war.

Figure 1: Average cost line of BTC held for 1-3 months

Based on long-term data research experience, I believe that among many groups, the short-term holders with a holding period of 1-3 months (1-3m_RP) are the most effective reference (as shown by the yellow line in Figure 1).

From the chart, it can be seen that in all past bear cycles, the 1-3m_RP has been a key resistance level during rebounds. This is because the chips held for 1-3 months are not very firm. A large portion of them entered without plans for long-term holding.

They might have originally just wanted to “grab a quick snack,” but ended up trapped and forced to hold for 1-3 months. When the rebound provides an opportunity to cut losses, they sell without hesitation.

Therefore, we see that in 2015, 2018, and 2022, each time BTC rebounded to the yellow line and was met with resistance, it would then pull back; rebound again, meet resistance again, and pull back again…

Of course, there are also multiple false breakouts, indicating that once some chips start to realize profits, they “run first,” which then triggers more chips to “follow suit,” forming false breakouts.

Ultimately, this reflects investors’ lack of confidence in the market.

Figure 2: Supply of BTC held for 1-3 months

For example, looking at the change in the supply of BTC held for 1-3 months in Figure 2, after March 29, there is a clear downward trend. This indicates that this portion of chips has decreased.

There are two possible reasons for the decrease:

1. They continue to hold and are now classified into longer-term holding groups.

2. They sold and are now classified into shorter-term holding groups.

Figure 3: Supply of BTC held for 3-6 months

Looking at Figure 3, the supply of BTC held for 3-6 months did not significantly increase after March 29. This proves that case 2 is more likely—that is, the BTC held for 1-3 months was sold during the rebound, and currently there are 1.09 million coins remaining.

🚩 The logic is explained; now let’s return to the current situation:

As of April 15, the 1-3m_RP is roughly around $75,400, and BTC’s price is also near this level. This is the second rebound in this downtrend approaching that resistance level.

The last time was between January 13 and January 19; after a slight breakout, selling pressure was triggered, and it continued to pull back. Will it be the same this time?

Based on past data, I think the possibility is quite high; after all, in the past three cycles, there has never been a successful reversal on the second challenge.

Of course, from a rational perspective, we cannot assume a “preset path.” Objectively, another possibility exists:

That is, BTC could break through the yellow line, but then encounter a larger resistance above, namely the STH-RP (short-term holder average cost line), currently around $81,000, with 2.31 million BTC (far more than the chips in the 1-3m group).

If it encounters resistance here, BTC might fluctuate around the yellow line, moving up and down, meaning the market needs time to digest selling pressure and start to cautiously choose a direction.

As time progresses, the yellow line will gradually turn upward, similar to the position marked by the green dashed line in Figure 1. That would indicate the market has bottomed out and entered a “bull-bear transition period.”

From a probability standpoint, scenario 1 (second resistance at the yellow line) is more likely, but scenario 2 (fluctuating around the yellow line) is not impossible. Therefore, we need to observe patiently, even if there is a temporary breakout, to judge whether it is real or false.

In any case, the current direction of the yellow line is still downward; it is unlikely to suddenly turn upward. This requires a relatively long transition process, and that process is the best time for us to make decisions.