Bitcoin drops 22% in a month! MicroStrategy reassures investors: it's just AI capital rotation, assets haven't depreciated

Bitcoin drops 22.7% monthly, MicroStrategy founder Saylor reassures this is capital rotation into AI development. But on-chain data shows short-term holders' cost basis has fallen below the average price, and the overall market is experiencing a fierce reshuffle.

Why did Bitcoin fall? The answer is related to AI

Bitcoin has declined 22.7% over the past four weeks, and MicroStrategy (Strategy) selling a small amount of Bitcoin has further eroded investor confidence. In response, founder Michael Saylor analyzes that the main reason for the decline is AI construction attracting capital, which is a capital rotation, and assets are not depreciating. However, pessimists hold the opposite view.

Meanwhile, on-chain analysis firms Glassnode and CryptoQuant CEO Ki Young Ju provide data-driven insights to help investors understand the current market structure shift.

MicroStrategy sees it as capital rotation, pessimists worry about market failure

Saylor explained the recent Bitcoin decline on social media, noting that in the past six months, about $400 billion has been invested into AI development, while spot ETFs have seen outflows of about $4 billion since May 14, putting pressure on Bitcoin prices.

Saylor emphasizes that this is capital rotation, assets are not losing value, and volatility creates opportunities.

However, MicroStrategy recently sold 32 Bitcoins, intensifying bearish sentiment. Although the company still holds 843,706 Bitcoins, bears continue to draw negative conclusions.

Anonymous trader QE Infinity on X states that Bitcoin has failed, even Saylor is selling. He believes MicroStrategy selling, ETF outflows, and Bitcoin's weakness amid new highs in U.S. stocks are all signs of failure.

Glassnode data shows the current Bitcoin market situation

Besides the market environment blamed on large holders, data can also reveal structural market shifts.

Glassnode reports that as of June 3, Bitcoin has fallen 13% over the past seven days, reaching the midpoint between realized price and true market average, with short-term holders' cost basis dropping below the true market average for the first time since January 2022, confirming entry into late bear market. Here are some key on-chain data points:

• Realized profit/loss ratio: 7-day moving average dropped from 3.16 to 0.29, reminiscent of February panic; 90-day moving average has not broken 2, confirming that the previous $82k rally was just a bear market rebound, not a return to bullish trend.
• Daily realized losses: Currently, Bitcoin's daily realized losses reach $1.35 billion, with $770 million from long-term holders cutting losses at cycle top, indicating supply redistribution is ongoing.
• Spot resistance above: Additionally, Bitcoin near $83k spot ETF cost basis was precisely rejected, causing spot ETF investors to return to unrealized losses and establish resistance above.

Market makers still favor defensive hedging

Looking at trading volume, Bitcoin's 7-day spot volume delta turned negative and hit a February low, dominated by seller orders; implied volatility continues to contract, but options pricing indicates future volatility is higher than recent market levels, leading to an expansion of volatility risk premium.

In the options market, the Delta skew remains in the put option premium zone, meaning investors are still willing to pay more for puts, indicating overall market sentiment is defensive, but the decline has not triggered a significant increase in downside hedging demand.

Market makers providing liquidity mostly hold contracts and chips concentrated around Bitcoin's current price zone, which is in the largest negative Gamma area. Most active orders in the market are still primarily for buying insurance (to hedge against downside risk).

Bitcoin undergoes fierce reshuffling, price returns to original position

In this cycle, Bitcoin's on-chain holdings have also seen interesting shifts.

CryptoQuant CEO Ki Young Ju points out that wallets holding Bitcoin for 6 months to 2 years now control 53% of realized market value, much higher than 15% two years ago. Historically, this indicator bottomed out at 68%, indicating short-term holders are transitioning into long-term holders.

Source: CryptoQuant. In this cycle, wallets holding Bitcoin for 6 months to 2 years now control 53% of realized market value.

Ki Young Ju states that this distribution phase reflects Bitcoin's large-scale transfer of ownership. Currently, the average investor cost basis is about $53k, and historically, bear markets tend to end after falling below realized price, but the current trend shows strong selling pressure.

Source: CryptoQuant. Currently, Bitcoin investors' average cost basis is about $53k, and historically, bear markets tend to end after falling below realized price.

Ki Young Ju's statistics:

• Since January 2023, MicroStrategy has bought 711,206 Bitcoins and sold only 32, so 711,174 Bitcoins are no longer active in the market.
• As of March 2024, Bitcoin price was $63,000, and since then, spot ETFs have absorbed 509,102 Bitcoins, while MicroStrategy purchased 650,706 Bitcoins.

In other words, during this cycle, despite the combined absorption of over 1.24 million Bitcoins by spot ETFs and MicroStrategy, the price has returned to the starting point, indicating extremely fierce reshuffling of market chips.