Markets
Bitcoin holders resume purchases after market sell-off
The basic laws of supply and demand determine the price action of any asset, including Bitcoin. When supply exceeds demand, the asset’s price tends to decrease. On the other hand, when demand exceeds supply, the price generally rises.
These same principles apply to cryptocurrencies, and on-chain metrics can provide valuable insights into the behavior of Bitcoin holders.
The impact of increased profit taking
When analyzing a long-term Bitcoin bull market, the price movement typically shows a significant increase. volatility, mixed with periods of corrections and consolidation. Most investors know that financial markets do not rise consistently, leading to a dynamic interplay between supply and demand, resulting in periodic corrections.
This trend is evident when looking at the realized limit and realized profits of Bitcoin.
- Limit realized: This adds up the value of all BTC based on the last moving price, giving a clearer picture of the money actually invested in Bitcoin.
- Profits realized: This refers to the actual gains that BTC holders made when they sold their Bitcoins for more than they paid for.
As Bitcoin reached a new all-time high From over $73,000 in mid-March, its Realized Cap also increased, suggesting that most long-term holders were profitable. Consequently, some exited their positions, resulting in a significant increase in realized profits.
Bitcoin limit and realized profits. Source: Glassnode
The growing supply of BTC in the market exceeded demand levels, leading to a corrective phase that saw Bitcoin price drops below $57,000. This drop has placed Bitcoin below its short-term holder realized price, creating a sense of fear in the market as short-term holders are more likely to sell based on price volatility.
- Realized Price: The average price at which all BTC was last purchased. It’s like finding out the average cost everyone paid for their BTC.
- Price Realized by the Short-Term Holder: The average price investors paid for the BTC they traded in the last 155 days. These BTC are the ones that are most likely to be spent or sold soon.
- Price realized by the long-term holder: The average price investors paid for BTC they haven’t moved in more than 155 days. These BTC are less likely to be spent or sold soon.
The price realized by the short-term holder, which is currently $60,500, served as the accumulation point despite investor fears. In fact, long-term holders felt comfortable adding more BTC to their positions at this level after taking profits in March.
Changing Bitcoin Supply and Demand Trends
Bitcoin’s long-term holder’s net position change provides insight into this behavior. After going through an extended distribution period, long-term holders began to accumulate again, having accumulated over 70,000 BTC since the beginning of May.
- Change in the long-term holder’s net position: It shows how the amount of Bitcoin held by long-term investors increases or decreases over time.
Based on the simple laws of supply and demand, as the demand for Bitcoin begins to exceed the available supply of BTC in the market, the odds of Bitcoin resuming its upward trajectory increase.
Observing the balance of Bitcoin on exchanges can corroborate this supply and demand dynamic.
- Balance on Exchanges: Refers to the total amount of Bitcoins held in cryptocurrency exchange wallets.
Since the beginning of May, more than 30,000 BTC have been transferred to private cryptocurrency wallets for long-term holding, showing confidence among holders in the future value of Bitcoin.
While evaluating the future price action of any asset can be challenging, several on-chain metrics can suggest potential prices that investors should pay attention to. One such metric is the MVRV Extreme Deviation Price Bands, which determine whether Bitcoin’s price is unusually high or low based on its historical averages.
- MVRV: It stands for Market Value to Realized Value. Market value is the current price of Bitcoin times the number of BTC in circulation, while realized value is the average price at which all BTC was last purchased.
- Price ranges: These bands show the upper and lower limits of Bitcoin’s price based on its historical MVRV values to help identify when Bitcoin is extremely overvalued or undervalued based on historical price data.
Bitcoin recently returned above +0.5σ price band, which currently stands at $64,600. Historically, such a rise has led Bitcoin to test the 1.0σ price range, supported by increased demand. That price range is currently around $77,000.
See more information: Bitcoin Price Prediction 2024/2025/2030
Summary and conclusions
The basic laws of supply and demand dictate Bitcoin’s price movements. In fact, prices fall when supply exceeds demand and rise when demand exceeds supply. On-chain metrics offer valuable insights into these dynamics, allowing analysts to understand the behavior of Bitcoin holders.
Recent data reveals a price drop below $57,000 as supply increased. However, long-term holders have shown confidence by accumulating over 70,000 BTC since the beginning of May. This trend suggests resilience in the market despite short-term volatility.
Key metrics such as Realized Cap and Realized Profits illustrate that many long-term holders were profitable at Bitcoin’s recent all-time high, leading to a wave of selling and subsequent price corrections. However, accumulation by long-term holders at lower prices indicates a positive outlook for Bitcoin’s future value.
See more information: How to buy Bitcoin (BTC) and everything you need to know
Overall, these on-chain metrics help identify shifts in supply and demand, providing a framework for understanding Bitcoin price action and investor behavior and indicating potential upward trends as demand begins to outstrip supply.
Disclaimer
In line with the Confidence Project guidelines, this price analysis article is for informational purposes only and should not be considered financial or investment advice. BeInCrypto is committed to accurate and unbiased reporting, but market conditions are subject to change without notice. Always conduct your own research and consult a professional before making any financial decisions. Please note that our Terms and conditions, Privacy PolicyIt is Disclaimers have been updated.