Bitcoin Rally Rests on Short-term Capitulation as Loss Margin Holds Near −20%

Bitcoin’s on-chain pain gauge eases but hasn’t cleared the runway yet, and that, according to one popular analyst, is the kind of thing traders should watch if they’re hunting for a bottom. “Bitcoin $BTC usually recovers once the on-chain trader loss margin drops below -37%. Right now, it sits at -20%,” crypto analyst Ali Martinez wrote in a tweet that accompanied a CryptoQuant chart tracking short-term holders’ realized profit/loss margin.

The purple swath on Martinez’s chart, which compares realized price and the short-term profit/loss margin, shows recent spikes in losses during sell-offs and the slow bleed of traders into negative territory. The metric measures how much recent buyers (roughly one- to three-month holders) are sitting on aggregate profits or losses.

History shows deep negative prints on that indicator often line up with short-term capitulation points and subsequent bounces. Analysts, including Martinez, have repeatedly pointed to past cycles, 2019, 2020 and 2022, where heavy unrealized losses among short-term holders preceded meaningful recoveries.

Bitcoin’s price itself has been volatile in recent weeks. At the time of writing, BTC is trading around $91,300, a level that has bounced between roughly $84,000 on the downside and resistance above $110,000 to $115,000 on the upside in November’s swings. Traders are watching $88k–$93k as a nearer-term battleground; a clean break above the $112k zone would likely change the narrative back toward fresh highs.

There is a bit of interpretation risk when reading the on-chain numbers. Different versions of the “profit/loss margin” or similar realized-loss indicators have been cited by analysts at different thresholds: in prior notes, Martinez and others have flagged a shallower threshold (around -12% in some calls) as historically significant.

At other times, market commentary references deeper prints (like the mid-teens to -16% seen in some November snapshots) as the point at which panic has historically bottomed. In short, the exact numeric threshold is sensitive to the indicator’s window and methodology, but the pattern, more pain for short-term holders tends to presage relief rallies, has shown up repeatedly.

Why Does This Matter Now?

The macro backdrop that helped lift crypto earlier this year has become mixed. Major banks and market strategists have flagged fading risk appetite and profit-taking from institutional allocations as pressure points, and that has fed into thinner liquidity and faster moves when sentiment sours.

Deutsche Bank strategists, among others, have warned that Bitcoin’s run depends heavily on investor belief, what they’ve called a “Tinkerbell effect,” and that confidence can evaporate quickly when macro or regulatory headlines hit markets. Those dynamics can push short-term holders into loss positions faster and deepen the kinds of on-chain readings Martinez’s chart captures.

Still, the on-chain signal is only one piece of the puzzle. Technicals, ETF flows, derivatives positioning and macro policy all play a role. Some institutional strategists remain constructive on a year-end rebound if demand returns to the market, while others caution that the institutional footprint (notably spot ETF flows that helped fuel 2024–25 gains) can accelerate both rallies and corrections.

For traders, that means watching both the on-chain pain gauges and price action around key levels: a sustained move back above $106k–$112k would materially lift the tone, while a breakdown below $84k–$88k would increase the odds of a deeper washout. So where does that leave us? Martinez’s tweet, and the chart behind it, is a reminder that bottoms are often messy and that a meaningful percentage of recent buyers need to be shaken out before a confident reversal can follow.

If the on-chain trader loss margin continues deeper toward the more extreme ranges cited by some cycle observers, history suggests the path to recovery becomes clearer. If it climbs back toward zero, that would likely imply sellers are still in control and buyers haven’t yet capitulated.

For now, traders have a mixed map: on-chain readings point to growing pain but not the deepest historical capitulation; price action sits in a wide trading band; and macro forces remain capable of whipping sentiment in either direction. In a market that has flipped between rapid euphoria and sudden fear in the last year, Martinez’s chart is exactly the kind of tool many market technicians are using to try to separate temporary dips from the kind of washout that historically marks a durable bottom.