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Record High Investor Confidence Could Still Lead to Brutal Sell-Off

Record High Investor Confidence Could Still Lead to Brutal Sell-Off thumbnail

Bitcoin (BTC) is in a long-term bear market that has been ongoing since at least November 2021. The decline in the price of BTC has wrecked most portfolios, and many on-chain indicators have led to historic lows. Despite this, some data indicate that another brutal sell-off may be ahead.

Today’s on-chain analysis looks at several indicators that, on the one hand, suggest that the Bitcoin market today has record high investor confidence and low risk. So far, the $18,500-$19,000 area appears to be solid support and market participants believe it will deliver a bounce. However, on the other hand, there are reasons to believe that the declines are not over yet and a final, deeper sell-off is ahead.

Reserve Risk – high investor confidence and low risk

Reserve Risk is defined as the price relative to the so-called HODL Bank. It is used to assess the confidence of long-term holders relative to the price of the native coin at a given time. When investor confidence is high and the price is low, there is an attractive risk/reward ratio. Reserve Risk is low. When confidence is low and the price is high, the risk/reward ratio is unattractive at that point. Then Reserve Risk is high.

On the long-term chart, we can see that in historical bear markets Reserve Risk reached lows in the green range between 0.0025 and 0.0001. In contrast, the historical all-time highs (ATH) of the Bitcoin price were correlated with the indicator’s peaks in the red range of 0.02-0.06.

Currently, Reserve Risk is hitting all-time lows (ATL) near 0.0009, an extreme low that falls below the green range and has never been seen before. The data suggests that the price of Bitcoin today is giving the best risk/reward ratio in history.

Reserve Risk chart by Glassnode

Another brutal sell-off?

Despite definitely bullish readings from Reserve Risk, some analysts are still warning of the possibility of yet another brutal sell-off in the Bitcoin market. In a recent tweet from @woonomic, we see a chart of the maximum pain expressed in the percentage of BTC supply underwater (recording a loss).

The famous analyst marked (in red) the periods when long-term hodlers and whales dumped their coins on th


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