Is Bitcoin heading for another 2022-style capitulation? Here’s what you need to know!

• Bitcoin’s (STH) cost basis could shape near-term market direction
• A decisive drop below this level? That’s when the real fireworks could start

Bitcoin’s [BTC] short-term holder (STH) cost basis is currently sitting at a lofty $93,460. Hence, it is a key inflection point for market sentiment. 

A dip below it? Well, we could see panic buttons getting smashed. 

Historically, dips under the STH realized price have been precursors to full-blown capitulation phases, especially among newer entrants sitting on thinning margins.

Flashback to the 2022 bear market – Bitcoin breached its STH cost basis multiple times with brutal consequences. In May, the spot price nosedived to $30k while STHs were positioned around $34k — A signal of mounting pressure.

Source: Glassnode

June saw Bitcoin cascade to $25k against a $32k cost basis. By September, it broke below $19k while STHs clung to a $27k average.

Each deviation below sparked sharp sell-offs, mass liquidations, and a feedback loop of fear. If Bitcoin slips below the current $93k-level, expect a replay of that volatility.

Bitcoin’s knack for defying expectations

Open Interest (OI) is a crucial metric in this equation. As Bitcoin flashes bullish signals, rising OI is seen as a green light for more liquidity and market action.

However, when Bitcoin dips, that same liquidity can become a ticking time bomb. More positions to liquidate means the risk of a liquidation avalanche, sending prices spiralling faster.

Flashback to the 2022 bear market – As Bitcoin crashed from $50k to $16k, the OI stayed stubbornly high at $20 billion – Signaling heavy leverage. When the support broke, a massive liquidation cascade followed.

At the time of writing, Bitcoin’s OI was $64.82 billion, the same level it was when BTC flirted with $100k. This suggested that the derivatives market could be getting a bit overheated.

Source: Coinglass

With Bitcoin’s knack for surprising the market, keeping tabs on these metrics is a must.

If BTC falls below its short-term holder (STH) cost basis at $93k, brace for a possible mass exodus. In fact, what might start as a small “dip” could quickly spiral into capitulation as OI positions get liquidated in unison.