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After weeks of Bitcoin (BTC) sell-offs, high-net worth individuals, or whales, are finally back to buying.
Their buying activity did not only pick up when the BTC price broke out of the two-months ascending triangle to new all-time highs, but also stayed intact since the price crash on April 18.
Their continuous buying activity comes at a time when addresses holding more than 1,000 Bitcoin reached their 4-month support line.
This is probably not a coincidence as the turnaround takes place at a time when profit-taking in the market is close to its support line too.
The level at which profit-taking takes place can be derived from the adjusted Spent Output Profit Ratio (aSOPR), which measures the ratio between the price sold and the price paid for a coin while disregarding temporary coin movements (movements within less than 1 hour).
In other words, aSOPR measures by how much holders were sitting in profit (in USD) by the time they sold their coins.
Since September 2020, profit-taking has kept finding positive support at higher levels. This suggests that whenever sell-offs happened in the past seven months, sellers were comfortable not selling at a higher profit level each time, compared to the previous sell-offs. However, this trend might eventually come to an end.
When zooming out and looking at profit-taking behavior in all prior bull markets, it becomes apparent that this is not only a one-time or a short-term trend but rather a longer-term pattern in Bitcoin bull markets.
These support lines tend to hold for 3-18 months. The chart below shows that a break of the second support line in each bull market historically confirmed that the bull market top was in.
Not only is the aSOPR close to breaking the 7-month support, but there is also one major difference in the latest pattern of this metric that could be a cause of concern.
Usually, the short-term tops of the aSOPR come in at higher levels each time as price increases further and rising confidence leads people to hold on to higher profits after each sell-off.
However, in the latest pattern, profits have been realized earlier in every sell-off wave for the last three months (see red arrow), a pattern usually common after a bull market top was already in.
The latest pattern could be explained by a slower price increase in recent months and a higher number of short-term holders realizing profits. This assumption is confirmed by looking at HODL Waves, which visualize the time Bitcoins are held on to.
The redder the color, the shorter the holding period. It becomes visible that it is short-term holders who have held Bitcoin for between one week and three months have been primarily selling into the market as of late.
When looking at the profit-taking behavior of short-term holders (STH-SOPR) only, one could infer that this cohort of traders might almost be done selling. The latest dip below the value of 1 shows that short-term holders even started realizing losses.
In a bull market run-up, this is usually where a bottom in price could be expected as selling activity tends to decrease significantly.
However, as bull market tops are not formed by a lack of sellers but rather by a lack of buyers, it is highly important to also look at the trend of the current demand side.
Current on-chain volume activity suggests that the capital inflow trend is still intact. A high number of coins are still changing hands, suggesting that buying activity is still ongoing. The realized price, which expresses this buying activity by valuing all Bitcoins based on when they last moved on a daily basis, gives a good idea of how much capital moved in and out of Bitcoin.
A steep curve suggests high on-chain transaction volumes. If it is followed by a flat trend, it usually indicates the beginning of the bear market as not enough buyers are coming into the market willing to pay higher prices anymore. As long as this steep curve does not flatten, there should be no concern about a dwindling number of buyers.
Although this evidence suggests that the bull market top is likely not in yet, there is also no clear confirmation that sellers are done selling just yet.
A break of the aSOPR 10-day moving average support line could be confirmed in the next few days. This may signal a trend shift in sellers’ behavior from bullish to bearish. Therefore, a negative short- to mid-term scenario should be considered if this occurs.
There are two major price support levels to look out for. The first one is around $51,325, which could be a strong defense zonea support level where whales most recently acquired a high volume of Bitcoin.
The second price support level is the NVT (Network Value to Transactions Ratio) price, which is currently at $47,679 and is a major price support level in Bitcoin bull markets.
If the market price was to fall significantly below the NVT price without a quick recovery within a few days, a detailed analysis of the demand side would be needed to judge if the market’s bullish structure has broken.
The supply-side suggests that sellers are currently in the driver’s seat, even selling Bitcoin at a loss in the past few days. However, their selling activity is expected to significantly reduce over the next few days if current behavior stays in line with prior bull market sell-offs.
If that is not the case, the breakdown of the aSOPR 7-month support line is likely and could signal a trend shift from bullish to bearish selling. Further downside should be expected with next major support in the range of $47,000-$51,000.
On the demand side, the capital flow still looks healthy. Enough volume is still willing to pay current prices, while whales ramped up their buying again. Current price action is still above NVT price, which suggests that current price fluctuations are still within the expected bullish territory.
Nevertheless, the demand side should be watched closely for a potential dry-up in on-chain volume over the next few days if price comes close to the NTV price.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Nothing here should be considered investment or trading advice. Past performance is not a guarantee of future results. Every investment and trading move involves risk. The author owns Bitcoin. You should conduct your own research when making a decision and/or consult with a financial advisor.
The price of Bitcoin (BTC) has dropped to the key $44,000-$45,000 support level on Feb. 28 for the third time in the past week.
The BTC/USD pair briefly dipped below $44,000 on Bitstamp before paring some of the losses, bouncing back above $45,000 at the time of writing.
Some analysts have pointed out an uptick in miners’ selling as the reason behind the latest drop in price.
It’s a whale war, and you know who got the real power.
US Institutional Investors
– Coinbase Outflow = STRONG BUY
– Coinbase Premium = BUY
– BTC Reserve = BUY
– Stablecoin Inflow TXs = BUY
– Miner Outflows = SELL
– Miner to Exchange Flows = SELL pic.twitter.com/fhVBp8qocm
— Ki Young Ju 주기영 (@ki_young_ju) February 28, 2021
Fortunately, the third retest of this key support level may have a silver lining for the bulls. Data analytics resource Glassnode noted that the daily Bitcoin Spent Output Profit Ratio (SOPR) has seen a “full reset.”
The SOPR essentially shows whether spent outputs are in profit or loss at the time of transaction. This key metric turned negative for the first time since September 2020. In other words, investors are now moving BTC at a slight loss on average, suggesting that profit-taking has abated, according to Glassnode.
“In total, we saw an on-chain net realized loss of $243 million yesterday,” the analysts added.
“That is the lowest daily value since April 2020.”
Meanwhile, popular trader Philip Swift, the co-founder of trading suite Decentrader and creator of the Golden Ratio multiplier method, also pointed out the SOPR crash.
He considers this a potentially bullish turnaround for BTC price in combination with last week’s reset of derivatives funding rates because such events have previously coincided with the start of new uptrends.
“The SOPR has now reset (green on the chart) meaning that wallets selling are now selling at a loss,” he explained, addin:
“This is a strong ‘buy the dip’ signal in a bull market. This alongside derivative fundings having reset is bullish.”
The last time the SOPR flipped green was five months ago when Bitcoin was trading around $10,000. At the time, this was a key hurdle for BTC to trigger a new bull market. Since then, the price has surged more than five folds to new all-time highs of around $58,000.
Nevertheless, many traders remain cautious as the market enters the month of March, which has historically been bearish for cryptocurrencies, and all markets in general.
“I think March may be slow with a lack of confidence in traditional markets but overall I am bullish Bitcoin and expect significantly higher over the next three months,” said Swift in private comments.
In the meantime, Bitcoin traders are keeping a close eye on the $44,000-$45,000 level. Trader Willy Woo, for instance, says the $45K level is very strong support and expects any dips below this level to be bought up aggressively should they occur.
UTXO Realized Price Distribution. This is the on-chain, more precise version of volume profile. The peaks represent the price where most coins changed hands.
$45k upwards is very strong support.
Any dip (if you’re are lucky) into $39k is a no-brainer BTFD.
Data: @glassnode pic.twitter.com/Z4xbEr0jTv
— Willy Woo (@woonomic) February 27, 2021
Furthermore, researchers at on-chain analytics firm Santiment believe that the entire cryptocurrency market now depends on Bitcoin holding above this key level.
“It’s been a red weekend thus far, with most eyes on Bitcoin as it has rallied back vs. the climb altcoins were making,” they said, adding:
Keep an eye on the $44k support level for BTC as an indication to monitor for all of crypto. As well as BTC’s on-chain activity.
On-chain metrics are indicating that continued downward pressure on the price of Bitcoin would result in many investors facing losses.
A Jan. 25 report published by crypto data aggregator Glassnode has noted that Bitcoin’s adjusted Spent Output Profit Ratio, or aSOPR, suggests that a further decrease in prices will leave many investors in the red according to when their holdings last moved on-chain.
Despite the metric suggesting few investors are sitting on paper-profits, Glassnode interprets the data as bullish, stating:
“In order for SOPR to go lower, investors would have to be willing to sell at a loss, which is unlikely given the current shape of the market […] We have been looking for this reset in order to generate some stability in the market and pave the way for the next bull run.”
Glassnode describes the indicator as representing the profit-ratio of coins based on the price of Bitcoin when they were last moved on-chain. As aSOPR is an on-chain metric, BTC circulations on centralized exchanges are not counted.
While SOPR should typically oscillate near 1, the extreme bullish momentum of recent months saw Bitcoin’s aSOPR spike above 1.15 for the end of December and the first half of January.
However, during bullish market conditions, values of aSOPR below 1 are rejected as traders are reluctant to sell at a loss.
Glassnode noted the aSOPR chart suggests that the current correction is coming to an end. From peak to trough of its recent, Bitcoin had corrected 31% when it fell just below $29,000 on Jan. 22. Bitcoin was trading hands for $31,750 at the time of writing.
On Jan. 25, Glassnode also reported that 2.3 million BTC or 12.6% of Bitcoin’s circulating supply moved on-chain while BTC was trading above $30,000, flagging the activity as bullish:
“This is substantial, given that BTC crossed $30k just this year. It suggests investors are injecting capital, and therefore confidence in further price appreciation.”