Bitcoin Supply in Profit Nears Bear Market Levels, Data Shows

Shrinking profit supply and rising losses suggest Bitcoin is entering a mid-bear phase, not full capitulation.

Bitcoin’s on-chain structure is shifting toward conditions often seen during bear markets. Data from CryptoQuant and Glassnode shows a steady compression in profitable supply alongside a rise in loss-making holdings. These changes suggest mounting stress across the network as prices trade closer to the aggregate cost basis. Market participants now face a phase in which sentiment and positioning could become more reactive.

Rising Losses and Eroding Profits Point to Mounting Market Stress 

Roughly 11.2 million Bitcoin remain in profit, nearing levels historically tied to late-stage drawdowns. During the previous bear cycle, that figure dropped to about 9 million BTC at its lowest point, according to CryptoQuant analyst Darkfost. The current trajectory signals a gradual erosion of unrealized gains across holders.

As profit margins shrink, Bitcoin’s spot price is converging with the average acquisition cost of the network. Such convergence often marks a shift away from distribution and toward conditions associated with capitulation. Pressure builds as fewer holders maintain meaningful profits, reducing the buffer against further downside.

Image Source: X/Darkfost

Loss-making supply has climbed to approximately 8.2 million BTC. Data from Glassnode shows levels not seen since late 2022. In the prior bear market, supply in loss peaked near 10.6 million BTC, indicating room for further expansion if conditions worsen.

Growing loss exposure tends to reflect rising financial stress among market participants. Historical patterns show that increases in underwater supply often align with forced selling and liquidity-driven moves. Weak hands typically exit during these periods, adding downward pressure on price.

Current data, however, has not yet reached the extremes seen at prior cycle bottoms. Darkfost noted that conditions are approaching undervaluation levels comparable to those of past bear markets. That view suggests the market may be approaching a phase in which downside becomes increasingly limited over time.

A different interpretation comes from Andri Fauzan Adziima of Bitrue. He argues the data points to rising market stress rather than immediate undervaluation. Previous cycle bottoms required deeper structural resets across multiple metrics.

Bitcoin’s Structural Bottom May Lie Near $55K, But Risks Remain

During 2022, supply in loss exceeded half of the circulating Bitcoin. Profit supply dropped closer to 45% or lower, alongside extreme readings in net unrealized profit/loss and market value to realized value. Current levels fall short of those thresholds, indicating the reset may be incomplete.

Adziima described the present phase as an early-to-mid bear transition. He placed a potential structural bottom near $55,000 but warned that further downside or prolonged consolidation remains likely. That outlook aligns with a partial rather than a full expansion of loss-making supply.

Drawdown depth also supports that view. Bitcoin has declined about 52% from its all-time high in this cycle. Previous bear markets saw declines of 77% to 84%. A shallower correction suggests either structural strength or an unfinished deleveraging process.

Generally, Bitcoin tends to face resistance when the U.S. dollar strengthens and global liquidity tightens. Higher yields attract capital into safer assets, reducing demand for risk assets like crypto.

Analyst Timothy Peterson pointed to the relationship between dollar strength and a weaker Chinese yuan as a key factor. That dynamic reflects tighter global liquidity, which often limits Bitcoin’s upside.

Dollar strength has persisted in recent months, adding pressure to the broader market. A meaningful shift may depend on declining U.S. interest rates and a weaker dollar environment. Peterson suggested such conditions are unlikely before late 2026 or even 2027.