While Bitcoin (BTC) takes its latest price correction, a climbing number of investors are under the weight of unrealized losses, especially among the short-term holders.
These are the folks who entered the market just last fall during the wild price surge we’re all too aware of at this point. And now these same folks are sitting on what seem to be some pretty substantial losses when you size them up against the current market drawdown. Of course, this is all very reminiscent of some of the earlier conditions in the current bear market. And that’s led at least some of us to wonder if we’ve yet to see the end of this phase.
At the same time, long-term holders (LTHs) are generally still in the profit zone, and despite the current market correction, they are showing resilience in maintaining their positions.
However, more and more of Bitcoin’s top-buyers are now transitioning into LTH status, and it stands to reason that this group also loves the idea of being in the profit zone. So, if/when the profits become losses for this cohort, how well will they fare in terms of absorbing said losses?
Historically, Bitcoin investor behavior shifts from right to left in the graphic above has been viewed as a warning sign, with the graphic itself potentially serving as a bear market confirmation indicator. Pump in 2017.
Short-Term Holders Grapple with Losses Amid Market Correction
Bitcoin’s latest price correction has created a large pool of short-term holders carrying unrealized losses. When we compare the current state of unrealized losses with the percentage drawdowns we’ve seen recently, we find that a not-so-small segment of short-term holders is likely feeling the pain of a market correction right about now. This pool of short-term, money-losing holders very often signifies just the early stages of a deeper bear market for Bitcoin. And that’s because these short-term holders—who tend to be the first to buy when Bitcoin is running up—are now on pace to be the first to give up and sell into the downtrend.
At present, Bitcoin’s price has seen sharp swings, and these movements have been felt most keenly by holders of the digital currency who have it on hand for only the short term. With this class of investor heavily affected by the correction, it seems likely many will be reevaluating their positions in a downward direction. Historically, the group most inclined to sell during such dips has been the short-term holder segment, a group unswayed by the long-term narrative.
Even though there are these challenges, the effect of losses that have not yet been realized on short-term holders is not a sign of panic among the general Bitcoin populace. It appears that many Bitcoin investors understand quite well the cyclical nature of these markets, and it seems that many will stay put, betting on the return of the market’s previous bullish peak sometime soon. But the collective, ongoing losses faced by these investors could further dampen sentiment. After all, if more and more of these investors decide to book some losses now to avoid the risk of booking bigger losses later, what might that do to the price of Bitcoin?
Long-Term Holders Remain in Profit, but a Shift May Be Imminent
Unlike short-term holders, long-term holders (people who have held Bitcoin for over a year) are, for the most part, still in the profit zone, and their positions remain resolute when one considers the price trend that is presently characterizing the crypto market. The vigilant long-term holder should watch for a significant potential trend change that could occur in the coming months. This potential change would see a considerable number of long-term holders who are presently in profit position, begin to find themselves in loss position.
The transition of principal purchasers into LTH classification is a chief occurrence in Bitcoin’s market cycle and has historically often confirmed the advent of a bear market. Yet, right now, no unmistakable indications of a bear market are present. The market is undergoing a correction; however, we might still see Bitcoin experience a rebound in the not-too-distant weeks or months. The actions of those who have been holding for the long term will be key in determining the appearance of a bear or other market structure.
Currently, patient long-term holders seem to be taking a “wait-and-see” approach as the market fluctuates. This group is primarily making no moves either buying or selling. However, if history shows us anything, the market seems to be on the edge of a breakthrough in either direction. If you think the road ahead is more bearish than bullish, then it would seemingly make sense for those long-term holders to take profit, maybe even in small bites, on the way down. But what if the opposite happens? What if we see a bullish breakout?
Bitcoin Withdrawals and ETF Inflows Highlight Growing Institutional Interest
Moreover, recent market activity has shown that institutions are taking a much greater interest in Bitcoin and its underlying technology. The last seven days, for instance, have seen over 15,000 Bitcoin leave exchanges. The most likely reason for this? An individual or institution is opting to hold their Bitcoin, which is a decision often interpreted as a strong sign of confidence in the long-term value of the asset—confidence to the extent that one is not worried about keeping the asset stored on an exchange.
In a neighboring development, inflows into Bitcoin exchange-traded funds (ETFs) have been remarkably strong. On April 17, U.S. spot Bitcoin ETFs enjoyed a net inflow of $108 million. The largest single-day inflow came not surprisingly from BlackRock’s Bitcoin ETF (IBIT), which saw an impressive $80.96 million inflow. This is a promising signal for Bitcoin’s long-term prospects. Large-scale institutional investors are clearly still looking for ways to gain exposure to the asset, even as many retail investors seem to have thrown in the towel.
Even though the immediate forecast for Bitcoin is unclear, growing institutional interest in the digital currency and the consistent withdrawal of BTC from exchanges indicates that we now have a broader market embracing Bitcoin as a valuable asset. If this trend continues, then not only should it support Bitcoin’s price at current levels, but it may also provide a cushion against any further downside.
Conclusion: Navigating the Current Bitcoin Market Landscape
Bitcoin’s current market correction has produced a complicated atmosphere for both long-term and short-term investors. The shorter-term investors are feeling the impact of unrealized losses, while the investment profits of the long-term holders are still intact. But they too might soon find themselves under added stress if the market doesn’t turn around soon. Meanwhile, as the core group of top investors transitions further into the long-term holding camp, will their behavior give new signals to the market? And if so, what will those new signals be?
Yet, even with the market’s ups and downs, the institutions seem to want in on Bitcoin. Big money is betting that the world’s most famous cryptocurrency will continue to thrive, and the kind of cash that these investors manage to attract sends a signal to everyone else. The two most recent snapshots of just how much confidence these institutional players have in Bitcoin are the filings to the Securities and Exchange Commission for Bitcoin exchange-traded funds. They have something like this in mind.
To conclude, although Bitcoin has a difficult moment in its market cycle, the increasing backing from institutions and the determination of long-term holders may turn out to be the forces that carry Bitcoin through this phase and into future growth.
Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.
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The post Bitcoin Market Trends Indicate Potential Shift as Short-Term Holders Face Unrealized Losses and Long-Term Holders Hold Steady appeared first on The Merkle News.
