Market 'fear' rises as Bitcoin falls to $112k, what is happening?

Bitcoin [BTC] is cooling off and short-term traders seem to be bailing out.

On August 16, the $117k momentum of BTC was rejected, triggering three consecutive days of net outflows and dropping the price to $112k. It was a clear signal that the supply-side liquidity in the order book is thinning out.

In short, it was a major setup for the Bulls to reinforce support, but the supply wall failed. The result? STH SOPR slipped below 1 for the first time in two weeks, marking its deepest level of realized loss in over a month.

For context, a SOPR sauce below 1 shows that short-term holders are capitulating, selling below their cost basis.

In this case, traders who bought above the $117K zone are likely unloading at break-even, as BTC failed to flip that level for support. This left bulls short and supply-side liquidity quite thin.

That said, early August saw a similar setup. Bitcoin fell 6% discounting the $118K resistance, sending STH SOPR to 0.99. But once the supply-side liquidity reloaded, it triggered a two-week bounce, peaking at a historic $124k.

💥Bitcoin at a key inflection point

At the time of publication, Bitcoin was testing its early August support.

Naturally, a thick supply wall here could flip the bullish tape and squeeze late shorts, but weak bids risk a crack towards $117k. This, in turn, would be a key inflection zone for BTC.

Notably, retail stacked at 61-62% indicated that small traders are leaning bullish, which could be counterproductive. Bid/Ask was shallow at 0.14, slippage 9.4.

Any bounce needs fresh buying flow, or BTC's rally could fail.

In summary, a 6% early August-style Pop looks tough with the current order book stacked against Bitcoin.

Short-term holders are capitulating, adding selling pressure that could limit bullish conviction. Without fresh buying flow, BTC risks grinding lower, with a breakdown below $110k directly at play.

Overall, retail overexposure and thin liquidity keep manifestations muted, establishing a cautious short-term bias.