Retail traders are selling Bitcoin at losses while long-term holders remain inactive, a split analysts say could tighten supply conditions.

Bitcoin is trading near the $70,000 mark, with on-chain data showing a widening gap between retail investors dumping their holdings and long-term holders staying completely still.

That split is drawing attention from analysts who say the pattern could be setting up conditions for a supply squeeze.

Exchange Reserves Are Falling While Small Holders Sell

According to analyst GugaOnChain, since the start of the year, Bitcoin exchange reserves have dropped by around 204,000 BTC, going from 2.99 million to 2.786 million BTC. This means that there are fewer units available on exchanges for selling, even with short-term holders offloading their stash.

The analyst mentioned that a metric tracking whether recent buyers are gaining or losing when they sell, known as the Short-Term Holder Spent Output Profit Ratio (SOPR-STH), is at 0.97. According to them, a reading below 1.0 means that holders are in the red, which could be because they are selling out of panic rather than as part of a strategy.

Meanwhile, long-term whales are not moving, with GugaOnChain pointing out that older coins, most of which are sitting on huge unrealized gains, have not been touched. Per the on-chain technician, selling pressure at this stage is “purely emotional,” driven mostly by newer traders who bought their BTC at higher prices and are now cutting losses.

A market update from fellow CryptoQuant contributor burakkesmeci added a related data point. They wrote that Bitcoin whales who have held the cryptocurrency for less than 155 days are sitting on an average cost basis of about $85,600. And with BTC trading well below that level, it means that those newer whales are underwater.

According to the analyst, Bitcoin’s bull cycles have only resumed once the price reclaims and holds above this group’s cost basis.

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“Looking at Bitcoin’s cycles, the pattern is consistent,” they wrote. “When price falls below the STH whale cost basis, bear season begins — when price reclaims and holds above it, bull season follows.”

Apparently, that level was tested in January but held as resistance and subsequently pushed BTC down to the $60,000 level.

Stress Test Passed, But Questions Remain

Last weekend gave the market an unexpected data point when oil prices jumped sharply, but Bitcoin held above $70,000. Fundstrat’s Tom Lee said it was a sign that Bitcoin was “coming back in vogue as a store of value.”

That argument got a brief test yesterday, when the king cryptocurrency whipsawed between roughly $69,000 and $71,200 after U.S. President Donald Trump claimed on social media that there was “nothing left to target” in Iran. Within minutes, his comment added nearly $2,000 to BTC’s price, even though it later retreated.

At the time of writing, price data from CoinGecko showed Bitcoin down 3.7% over the last seven days, underperforming the broader crypto market, which dropped around 1.7% in the same period. Meanwhile, the one-year return is at -15%, with Bitcoin also sitting nearly 45% below its all-time high.