Bitcoin has experienced significant volatility following the Bybit hack, with short-term holders (STHs) panic-selling their holdings. This selling frenzy, while marking a sharp decline, may also signal the formation of a potential local bottom for BTC’s price. Let’s dive deeper into the market indicators and what this could mean for Bitcoin’s future trajectory.

Panic Selling by Short-Term Holders (STHs)

In the wake of the Bybit hack, many short-term Bitcoin holders experienced substantial losses, prompting them to sell off their holdings. In the last 24 hours, Bitcoin’s 4-hour chart revealed bearish indicators, including a significant decline in price and a negative shift in market sentiment. BTC dropped to $96,259.9, reflecting a 0.12% decrease from the previous period.

The Exponential Moving Average (EMA) indicated a bearish crossover, with the 9-period EMA dipping below the 26-period EMA, signaling a short-term downward momentum. Meanwhile, the Relative Strength Index (RSI) was at 46.05, suggesting a neutral, slightly bearish outlook. RSI levels between 30 and 50 typically represent a consolidation phase, with no clear overbought or oversold conditions. A rebound above 50 could indicate a potential recovery.

Capitulation and Local Bottom

The Short-Term Holder Profit & Loss (P&L) to Exchanges Sum chart reflected massive losses among short-term holders, especially between $90K and $95K in the aftermath of the Bybit hack news. The dominance of red bars in the chart indicated substantial selling activity, but also highlighted that most traders were taking a loss, rather than making gains.

Such capitulation, where distressed holders unload their positions, often signals the end of a sell-off and the formation of a short-term bottom. A similar pattern was seen in early 2022, when heavy realized losses marked the beginning of a price recovery for Bitcoin.

Liquidity Shift and Reduced Selling Pressure

Bitcoin’s liquidity situation also paints an interesting picture. The 90-day active supply of Bitcoin has been steadily declining, falling from 6 million BTC in late 2024 to around 4 million BTC by early 2025. A drop in active supply typically suggests less trading activity, which can point to a reduced interest from short-term traders.

This decline mirrors trends seen in 2018, when a decrease in active supply preceded a stabilization in Bitcoin’s price. This indicates that the selling pressure from short-term holders may be subsiding, setting the stage for a potential recovery.

Netflows and Potential for Recovery

In addition to the declining active supply, Bitcoin’s exchange netflows have shown a notable reversal. In the last 24 hours, there was a sharp outflow of -546.11 BTC, contrasting with the positive net inflows observed in the previous weeks. Large withdrawals from exchanges generally suggest reduced selling pressure, with holders choosing to move their Bitcoin into off-exchange wallets.

This behavior was similar to mid-2021, when large outflows from exchanges preceded a price rebound. The 24-hour netflow change of +269.71 BTC further suggested renewed buying interest, signaling that the market could be shifting toward a recovery phase.

Conclusion: A Shift Toward Recovery?

While Bitcoin continues to experience short-term volatility, the combination of panic-selling from short-term holders and declining exchange netflows points toward a potential turning point. Historically, capitulation events have been followed by price recoveries, as the market adjusts and stabilizes.

The reduced selling pressure from STHs and the growing signs of accumulation could provide a foundation for BTC’s next upward movement. However, short-term volatility may persist before a full recovery materializes. Long-term indicators suggest that Bitcoin might be positioning itself for a rebound, as the panic-selling subsides and market conditions improve.