Definition ∞ Active supply underwater represents the quantity of a cryptocurrency held by addresses that acquired it at a price higher than its current market value. This metric indicates the portion of circulating tokens currently experiencing an unrealized loss based on their last movement on-chain. It quantifies the collective financial position of holders whose acquisition cost exceeds the prevailing market price. This data point is a significant on-chain indicator for market sentiment and potential selling pressure.
Context ∞ Monitoring active supply underwater provides crucial insight into investor capitulation and potential support levels during market downturns. A high proportion suggests widespread unrealized losses, which historically can precede either further selling or a market bottom as weaker hands exit. Conversely, a reduction indicates a healthier market structure with fewer participants holding depreciated assets.
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