Bitcoin Price Faces Transitional Phase, On-Chain Analysis Shows
Bitcoin’s (BTC) bullish run from the start of the year seems to have hit a roadblock, as on-chain metrics suggest that the asset is entering a transitional phase. Technical indicators highlight key resistance levels that the asset must surpass to maintain the winning streak. Bitcoin price has retreated by 9% since hitting an all-time high of $58,000.
The market still boasts a bullish sentiment, as several analysts project that the asset could hit $25,000 in the short term despite the prevailing headwinds. However, some crypto traders are bracing themselves for a potential drop below the $22,000 level. At that point, short sellers could take advantage, triggering a slide to as low as $19,000, according to market projections.
Realized Price Metric Highlights Profit-Taking
The Federal Reserve’s interest rate hikes and high inflation weigh heavily on Bitcoin’s price. Some investors are concerned about the time value of their investments, analyzing how BTC holders benefit based on the amount of time they held their BTC and the average acquisition cost.
Investors who bought BTC within the last six months during the bear market benefited from an average realized price of $21,000, placing them in profit. The average market realized price across all BTC holders is currently $19,800, indicating profit. Conversely, BTC held for over six months has a higher realized price than the rest of the market groups at $23,500. As such, holders that have held for over six months start dumping their BTC once the price hits above $23,500, putting pressure on a breakout.
Liquidity Inflows Increase, but Lag Behind 2022
Bitcoin price is highly reactive to interest rates and the U.S. Dollar Index (DXY), which puts a strain on risk assets. The negative impact of these factors is great for short sellers, but bad for Bitcoin’s price. The best way for the Bitcoin price to withstand short-seller pressure is for new long liquidity and spot buyers to enter the market.
Analyzing exchange net flows is a good way to measure new liquidity, and currently, this metric reflects a 34% uptick since the start of 2023, but it lags behind the yearly daily average of $1.6 billion. Analysts have a general consensus that the ability to onboard new liquidity into the crypto market has been hindered by a crackdown on banks that support crypto-oriented businesses.
Uptick in Unrealized Bitcoin Profits Mirrors Previous Cycles
Whilst some Bitcoin investors were realizing profits, positive on-chain signals appeared when looking at the Net Unrealized Profit/Loss metric (NUPL). The NUPL metric shows the difference between unrealized Bitcoin profit and unrealized loss within the BTC supply.
Glassnode reports that NUPL metrics on March 6 show that “since mid-January, the weekly average of NUPL has shifted from a state of net unrealized loss to a positive condition. This indicates that the average Bitcoin holder is now holding a net unrealized profit of magnitude of approximately 15% of the market cap”. This pattern resembles a market structure in previous bear markets’ transition phase.”
Conclusion
Bitcoin’s upward trend has hit a brick wall, as on-chain metrics indicate a transitional phase for the asset. Some traders are bracing for a potential drop to as low as $19,000, while others project that the asset could hit the $25,000 level in the short term. The Federal Reserve’s interest rate hikes and high inflation are among the macro headwinds affecting Bitcoin’s price.
On-chain data highlights the profit taking for BTC investors who bought within the last six months, while the realized price for holders that held BTC for more than six months is higher. Analysts also take note that the ability to onboard new liquidity into the crypto market has been hindered by a crackdown on banks that support crypto-oriented businesses.
In the meantime, Bitcoin’s NUPL metrics highlight an uptick in unrealized profits that reflects a market structure resembling the transition phases of previous bear markets. Although uncertainties linger, such positive on-chain signals indicate that the transition out of the deepest phase of the bear market is near.