Bitcoin ( BTC ) 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 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 — 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 are still holding a 3% unrealized loss on average.

Bitcoin’s current price 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, per CoinGlass data .

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

Bitcoin’s price briefly plummeted to its lowest price in three months on May 1. Source: CoinMarketCap

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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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.

Bitcoin’s price breaks below short-term holders’ cost basis. Source: Checkonchain

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.