Bitcoin trades below the average cost basis of a US spot exchange-traded fund [ETF] investors after recording the second and third largest weekly outflows on record.
The shift coincides with a sharp contraction in the amount of BTC making gains across the network.
According to data from Galaxy Research, Bitcoin has fallen below the ETF’s overall average purchase price after consecutive weeks of heavy redemptions. This caused the average ETF holder to suffer unrealized losses.
Weekly outflows exceeded several billion dollars at the end of January, and the figures are expected to rise further.
At the same time, on-chain data shows a broad deterioration in holder profitability.
CryptoQuant’s Supply in Profit metric indicates that the number of bitcoins held at unrealized profit has fallen to approximately 11–12 million BTCfrom approx 19–20 million BTC in August. The decline marks one of the lowest figures of the current cycle.
Bitcoin ETF positioning is running underwater
The ETF cost basis chart highlights a rare alignment between institutional positioning and stress in the chain.
While previous price declines left ETF buyers largely isolated, the latest pullback has pushed spot prices below the blended entry level of US ETF inflows since launch.
Source: Glassnode
Bitcoin traded close $74,000 at the time of the last data. At the same time, the ETF’s average cost basis is above it $84,000indicating that a significant portion of institutional inflows are now underwater.
Historically, periods when spot prices remain below the ETF cost basis tend to suppress short-term demand as inflows decline and redemptions become more sensitive to volatility.
The compression of the profitable supply is increasing
The drop in supply following the gains suggests the decline is no longer limited to recent buyers or leveraged traders. Instead, profitability has eroded across a wide range of farmer cohorts.
Since October, every recovery effort has failed to meaningfully rebuild profitable supply. The rallies in December and early January saw only a modest recovery before renewed downward pressure pushed more coins into unrealized losses.
The latest move lower reversed much of that progress, sending the metric back to cycle lows.
Source: CryptoQuant
This pattern indicates that the market is transitioning from profit-driven distribution to loss-driven consolidation.
As more holders slip underwater, selling pressure often decreases after the initial decline. Furthermore, price action is increasingly bound to a certain bandwidth as participants hesitate to realize losses.
Implications for the market
The convergence of ETF losses and declining on-chain profitability help explain the market’s recent behavior: muted rebounds, lower liquidity and increased sensitivity to macro news.
Rather than a leverage-induced liquidation cascade, the current price action reflects a structural reset in positioning.
Stabilization typically requires either long-term consolidation that allows the cost base to be adjusted, or renewed demand strong enough to lift prices back above key collective entry levels. Until then, upward momentum may remain limited.
Final thoughts
- Bitcoin’s decline is increasingly driven by profitability depletion, with both ETF investors and on-chain holders now largely underwater.
- A sustainable recovery will likely depend on whether prices can regain the ETF cost basis or a period of consolidation that rebuilds profitable supply.