Last week, bitcoin experienced a rally, surpassing $44,000. However, it encountered a significant resistance level at almost $45,000 and subsequently underwent a price retracement. This article aims to analyze the cause of this retracement and the influence of profit-taking by different groups of investors on bitcoin’s price movement.
In a recent report by CryptoQuant, an analyst named Yonsei explored the impact of profit-taking by examining on-chain data. Yonsei discovered that short-term holders and investors within the 6-18 months cohort exhibited a tendency to realize profits when bitcoin’s price broke through the $40,000 resistance. This profit-taking behavior was reflected in the Bitcoin Binary Coin Days Destroyed (CDD) metric, which measures the weight of coins that have not been spent for a long time. An increase in Binary CDD signifies the spending of a significant supply of BTC held for relatively long periods.
During BTC’s rally in early December, Yonsei observed active movements in the Binary CDD, suggesting recent activity by short-term holders. The presence of profit-taking actions was further supported by the fact that a majority of BTC holders were in profit. Bitcoin’s Spent Output Profit Ratio, which has remained above one for an extended period, indicated that approximately 90% of holders were experiencing profits. Consequently, short-term holders took advantage of high-profit margins and sold their BTC, contributing to the price retracement.
In contrast, long-term holders displayed a different behavior. Despite the price slump from $44,000, these holders demonstrated resilience and refused to sell their assets. They held onto their bitcoins, anticipating higher price levels in the future. This steadfast approach from long-term holders reflects their confidence in bitcoin’s potential and long-term value.
According to CryptoQuant’s weekly report, selling pressure in the crypto market was witnessed from both Bitcoin miners and whales. The high outflow levels from miners indicated that they sold more assets when bitcoin soared to $44,000, generating an average profit margin of 40%. It is evident that profit-taking plays a significant role not only for individual holders but also for entities closely associated with the cryptocurrency industry.
Though the bear market is now in the past and liquidity conditions in the crypto market are improving, bitcoin’s price remains relatively stagnant. At the time of writing, bitcoin is hovering around $41,300, a 6% decrease from its recent high. This suggests that profit-taking activities have impacted the price stability of bitcoin in the short term.
Profit-taking by different investor groups has a noticeable influence on bitcoin’s price movements. Short-term holders tend to realize profits during price rallies, while long-term holders demonstrate resilience and a belief in bitcoin’s long-term value. Additionally, selling pressure from miners and whales contributes to market dynamics. As bitcoin continues to evolve, observing profit-taking behaviors will help investors better understand and analyze price fluctuations in the cryptocurrency market.
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