The hopeful optimism of Bitcoin (BTC) traders seemed to dissipate in the first week of March, as several major on-chain metrics offered resistance.
Now the price of Bitcoin is threatening to touch the $22,000 level again and a wave of short sellers would benefit if that occurs. If the short sellers reach the strike price, some analysts believe that the price of Bitcoin could drop as low as $19,000.
A handful of analysts still see BTC price reaching $25,000 in the near term, and on-chain data highlights some reasons for the price’s resistance to higher levels.
Realized Price Metric Highlights Profit Taking
Market participant concerns over Federal Reserve rate hikes and high inflation are strong macroeconomic headwinds facing the Bitcoin price, prompting investors to weigh the price of Bitcoin. time value of money of BTC investments. To measure on-chain TVM, Bitcoin holders can be categorized into groups based on how long they have held BTC and the average cost of acquisition.
Investors who bought BTC in the last 6 months benefited from early bear market conditions and have an average realized price of $21,000, putting them in the profit zone. The median market price for all BTC holders is $19,800, also at a profit.
By contrast, BTC held for more than 6 months has a higher realized price than the rest of the market pools at $23,500. When Bitcoin breaks above $23,500, holders who have had poor TVM returns for more than 6 months could push for a breakout as they are eager to take profits.
Liquidity inflows rise, but pale in comparison to 2022
The Bitcoin price is highly reactive to interest rates and the US Dollar Index (DXY), putting pressure on risk assets. The negative impact of these factors is good for short sellers, but bad for the Bitcoin price. The best way for the Bitcoin price to withstand pressure from short sellers is for new spot buyers to enter the market wanting to go long.
Looking at net deposits to exchanges is a good way to measure new liquidity and this metric currently reflects a 34% rebound from early 2023, but lags behind the annual daily average of $1.6bn.
Currently, the general consensus among analysts is that the ability to bring new liquidity to the cryptocurrency market has been hampered by the crackdown on banks that support cryptocurrency-focused companies.
Bitcoin Unrealized Gains Rally Reflects Previous Cycles
While some Bitcoin investors were taking profits, positive on-chain signals appear when looking at the Net Unrealized Gains/Loss (NUPL) metric. The NUPL metric shows the difference between Bitcoin’s unrealized profits and unrealized losses within the BTC supply.
According to Glassnode, the NUPL metrics for March 6 show:
“Since mid-January, the weekly average NUPL has moved from a state of net unrealized loss to a positive condition. This indicates that the average Bitcoin holder now has a net unrealized gain of the magnitude of approximately 15% of the capitalization This pattern resembles a market structure equivalent to transition phases in bear markets of the past.”
Although Bitcoin’s 2023 momentum may have taken a pause in mid-February and many headwinds remain, there are positive signs that the transition out of the deepest phase of the bear market is near.
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