BTC pulls back by nearly 30% When will institutional funds return?

According to the latest "Bitfinex Alpha" report, BTC's price is waiting for long-term holders or institutional demand to absorb the recent selling pressure from short-term holders.

Since hitting an all-time high of $109,590 on January 20, BTC's decline has heightened concerns about the role of institutional investors in maintaining market momentum.

The recent drop in BTC's price below $77,000 marked a 29.7% correction from the peak, making it the second largest correction in the current bull cycle.

Historically, a 30% correction often heralds a market rebound, but the current situation shows that "deep-pocketed investors" have not yet fully absorbed the selling pressure.

Institutional Fund Flows and Market Stability

Institutional adoption of BTC, driven primarily by spot BTC ETFs and corporate accumulation, has played a key role in reducing the depth of the current market cycle's pullbacks.

Past pullbacks have ranged from 18% to 22%, highlighting a flattening of the pullback trend.

However, the current 29.7% drop suggests that institutional support has weakened. The report noted that ETF outflows reached $921.4 million on four of the five trading days last week, further reinforcing the trend.

Without a new round of buying from institutional investors, BTC may face the risk of long-term price consolidation or further decline.

Increasing selling pressure

Market data shows that BTC short-term holders (STH), defined as "wallet addresses that hold BTC for less than 180 days", are increasingly selling at a loss.

When the price fell below $90,000, STH had an unrealized net loss, which has historically been a catalyst for increased selling pressure.

A particularly vulnerable segment of this group is the "shrimp" addresses, or holders of less than 1 BTC, who tend to sell BTC to unwind when prices rebound after a long period of unrealized losses.

The recent trend in the cost basis of BTC buyers further illustrates the weakening demand. In a strong market, the cost basis of those who bought BTC in the past 7 days to 30 days will generally be higher than those who bought 1 month to 3 months ago, indicating bullish market sentiment.

However, this pattern reversed in the first quarter of 2025, with new investors entering the market hesitant to digest the market supply. This shift coincided with BTC's drop below $90,000, reflecting a shift from momentum after hitting a new all-time high to a risk-off environment.

Key indicators reflect market wait-and-see sentiment

The short-term holder expenditure output profit ratio (STH-SOPR) is a key indicator for assessing BTC's current selling pressure. It measures whether STH is sold at a profit or a loss.

Since BTC fell below $95,000, the 30-day moving average of STH-SOPR has remained below 1, indicating that most short-term investors are selling at a loss.

With 1 as the neutral zone, the indicator fell as low as 0.97 when BTC briefly reached $78,000. This move marked one of the most dramatic capitulation events in this cycle.

The continued downward pressure has led to a more cautious sentiment in the broader market, prompting short-term players to continue selling. Historically, such conditions have signaled localized seller exhaustion, where weaker investors leave the market and stronger hands begin to accumulate again.

Long-term investors often monitor these conditions for potential re-entry opportunities, recognizing that a deeply negative STH-SOPR reading can serve as a contrarian buy signal.

The report states that as BTC experiences one of its most significant pullbacks in this cycle, the reaction of institutional investors will be critical in determining the next phase of the market's trajectory.

If institutional capital returns in large quantities, it could provide the necessary support for a recovery in BTC prices. However, without renewed interest from deep-pocketed investors, BTC's price action could remain subdued, manifesting itself as continued range-bound volatility or further declines.