Around 30% of the bitcoin in circulation is worth less than what holders paid for it, Glassnode has found

• About 5.7 million bitcoins in circulation, or 30%, are underwater, Glassnode said this week.
• Twice when the demand for bitcoin was this low compared with supply, the price has rebounded, it noted.
• Some analysts aren't hopeful of a rebound, given bitcoin is more than 30% below its record of nearly $69,000.

About 5.7 million bitcoins in circulation are worth less now than what the holders paid for them, Glassnode has found, as the cryptocurrency continues to slide.

That adds up to around 30% of circulating supply, the data analysis provider said in its weekly newsletter.

Cryptocurrencies across the board have slumped in the last month, tested by a rally in bond yields spurred by the Federal Reserve's plan to hike interest rates this year. The global crypto market has shrunk to about $1.95 trillion, from around $3 trillion about two months ago.

Bitcoin was trading at around $42,127 at last check Wednesday, according to CoinMarketCap data — more than 30% below November's record high of almost $69,000.

"As the drawdown worsens, an increasingly significant volume of BTC supply has fallen into an unrealized loss," Glassnode said in its Monday newsletter. "Approximately 5.7 million BTC are now underwater (~30% of circulating supply)."

But history suggests things could end well for bitcoin holders if they can keep their nerve, according to Glassnode. On two previous occasions when the demand for bitcoin was this low, compared with the supply available, the price has rebounded.

One was just after crypto markets capitulated in the face of the coronavirus pandemic, between May and July 2020. Prices recovered soon after, thanks to government support for the economy and central bank stimulus.

The next instance happened a year later, between May 2021 and July 2021. Cryptocurrencies crashed in price under the impact of a range of events, including China's clampdown on digital assets and concerns about the environmental impact of bitcoin mining.

On both occasions, bitcoin bulls were rewarded for their patience with a bounceback.

The price reaction now will provide insight into the medium-term direction of the bitcoin market, according to Glassnode.

"Further weakness may motivate these underwater sellers to finally capitulate, whereas a strong bullish impulse may offer much needed psychological relief and put more coins back into an unrealized profit," it said.

Analysts at UBS are not hopeful of a rebound, as they point out the crucial role central bank stimulus played in these previous rebounds.