Key takeaways:

• Derivatives and onchain data show a lack of bullish conviction, as 43% of Bitcoin holders remain at a loss despite recent price gains.

• Surging AI energy demand is squeezing miner profits to record lows, forcing major listed firms to offload BTC and pivot to computing.

• Traders face a psychological hurdle at $76,000, the average cost basis for major corporate holders like Strategy.

Bitcoin (BTC) surged to a four-week high on Wednesday, potentially clearing a path for a recovery toward the $78,700 monthly close recorded in January. Despite a 22% rally from the $60,000 local bottom on Feb. 6, several onchain and derivatives metrics suggest bears remain comfortable. 

Demand for downside protection through Bitcoin options continues to dominate the market.

Put (sell) options recently traded at a 10% premium relative to equivalent call (buy) instruments. In neutral market conditions, this indicator typically ranges between -6% and 6%, a level last observed in mid-January when Bitcoin traded near $95,000. 

Professional traders appear to fear further downside, while demand for bullish BTC futures remains stagnant; the annualized premium, or basis rate, currently sits below the neutral 5% threshold.

The weakness in Bitcoin derivatives reflects the month-long consolidation following the 32% crash during the first week of February. However, the lack of conviction from bulls even as prices move above $73,000 suggests a deeper hesitation. This cautious mood likely comes from the fact that a significant portion of holders are still stuck in the red.

Currently, 43% of the supply is held at a loss based on the price coins last moved, according to Glassnode data. This share of holders sustaining losses spiked from 30% when Bitcoin traded at $90,000 in late January. Traders fear that investors sitting on these losses will gradually exit their positions as the price recovers, creating persistent overhead sell pressure that could cap further gains.

Another source of concern stems from the Bitcoin mining sector, which has faced significant pressure due to the exponential growth in artificial intelligence demand. Rising energy costs and declining demand for the Bitcoin blockchain registry have pushed miner profitability toward all-time lows. Several major listed mining firms have pivoted toward AI computing, offloading their Bitcoin holdings in the process.

The Bitcoin Hashprice index, which measures the expected daily value of one terahash per second of hashing power, plummeted to $30 on Tuesday, down from $39 three months ago. Investors fear that miners may transition into net sellers after a prolonged period of accumulation. 

Mining companies that previously maintained a Bitcoin strategic reserve are now reportedly eyeing more profitable opportunities in alternative high-performance computing sectors.

Related: MARA exec pushes back on Bitcoin treasury sell-off narrative

Strategy’s $76,000 cost basis could be the turning point for Bitcoin momentum

Strategy (MSTR US) remains the primary example of a Bitcoin-centered balance sheet strategy. After purchasing 720,737 BTC since its initial deployment in August 2020, the company faced scrutiny as Bitcoin dropped below its average acquisition price of approximately $76,000. 

Other publicly traded entities, including Metaplanet (3350 JP) and Twenty One Capital (XXI US), have encountered similar valuation challenges during the current bear market conditions.

While Strategy does not face imminent liquidation risks or a lack of cash for interest payments on yield-bearing assets like STRC, bears recognize that prices above the Bitcoin cost basis incentivize stock issuance without diluting current holders. 

Essentially, market participants looking to suppress the price have strong incentives to keep Bitcoin pegged below $76,000. Therefore, a recovery toward $78,700 may take longer than expected, though momentum could shift in favor of bulls once that key level is breached.