Bitcoin has gradually become a favorite among investors looking to drive value to their portfolios. While digital money wasn’t wildly popular among traders in the beginning, that has changed in the meantime, and cryptocurrencies enjoyed an astronomical climb to success. Bitcoin, in particular, has become wildly popular, even earning the moniker “digital gold” for its capacity to retain value. Although 2023 hasn’t been the way many investors predicted, as Bitcoin couldn’t gain momentum and climb over the $30k milestone, investors are still looking into the best way to buy Bitcoin.
However, a new strategy adjustment seems necessary, considering that the marketplace appears to be far from recovered, and the outlook remains uncertain.
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Short-term holders
Almost 90% of short-term Bitcoin holders are experiencing unrealized losses. These traders equate to nearly 2.30 million BTC. The coin was hit by a serious slide in August, which lowered its price by almost 10%. The drop to $26,000 caused the market to drop below some technical indicators, among them the 200-day SMA. This isn’t the best news for a marketplace that was already relatively unstable due to the continuous regulatory pressures, as well as the problems in the traditional economic sphere.
However, despite the slump, long-term holders remain largely unbothered by the market drop. It is the short-term holders that bear the brunt of the problem instead. Before the single-day sell-off, the markets received the top-heavy label. This scenario typically occurs when there are significant volumes of spot supply with a cost basis that is either close to or above the current price point. When it comes to Bitcoin, approximately 12.8% of the overall supply set a lower-than-usual metric and therefore incurred unrealized losses. That amounts to 2.48 million coins.
The fact that the long-term users haven’t moved in any way is a typical behavioral pattern of the community. They tend to act the same way during all bear markets.
Oversold conditions
Technical analysis indicators show that the Bitcoin market presents considerably oversold conditions. Surging bond yields have started weighing over asset classes, including BTC. The relative strength index has plunged below thirty, recording the strongest oversold reading since March 2020. At that time, the issue was the market crash brought on by the emergence of the Covid-19 pandemic. This indicator shows the price movement over a specific period, generally fourteen days.
When the figure moves below thirty, it clearly shows oversold conditions. The price dropped way too quickly compared to the recent average. Anything above seventy would point towards overbought conditions. However, many warn that these numbers are insufficient to accurately determine whether the market is moving in a bullish or bearish direction. The cryptocurrency market remains reasonably complex, and any movement is typically influenced by several corroborated factors instead of one single fundamental event.
The latest oversold reading could be taken as a sign that the bearish momentum has been gaining strength and traction. Market analysts seem to believe so now. While the current levels are moving between $25k and $26k, it appears that if the price drops continue, investors can expect to fall even further, around the $24,700 area. Many have connected the Bitcoin drop with the United States inflation-indexed security climbing to 2%. This is the highest it has been since 2009.
Increasing sensitivity
Given that the market remains volatile, it should be no surprise that short-term holders and speculators are more sensitive to market movements. The STHs hold BTC for 155 or less, being the counterparts of the hodlers, who hold on to crypto coins for years on end in order to drive their value up. It would now seem to many that this is the winning strategy, considering that only around 300k coins held by short-term holders are still profitable. That’s a meager 11.7% of the 2.56 million they own.
August has seen a significant shift in profitability for this trader group. It is particularly noteworthy considering that the speculators used to function as a framework for the Bitcoin trading range. There’s been a sizable profit decline as the 2023 price rally progressed. More and more short-term holders began to acquire coins at an elevated cost basis. This doesn’t only show that the STHs are vulnerable at the moment but also that they might become increasingly price-sensitive in the future.
Hodler supply
On the other end of the spectrum, the LTH investors have not reacted to the plunge below $26,000. The aggregate balance went up for this group, while the exchange inflows were negligible. It is short-term holders that are more interesting to observe during this period since they are the ones dealing with unrealized losses. Bulls appear to be going through a rough patch again, and the bear market seems to have regained its strength.
The long-term holders have been estimated to control approximately 75% of the circulating supply. That means that the addresses now own a whopping three-fourths of Bitcoin, with an increase to 14.52 million BTC. This surpasses the previous peak of 14.48 million coins first registered on May 21st. This suggests that hodling has become the preferred dynamic among investors, especially the mature ones that have interacted with the environment for some time.
Pricing outlook
So, what’s there to say about the way in which the Bitcoin price is expected to progress? While predictions have always been popular within the ecosystem, it’s challenging to determine exactly how accurate they are. But that doesn’t stop investors and market researchers alike from expressing their opinions. At the moment, Bitcoin is trading flat and has continued to struggle with pricing dips.
However, it’s possible that consolidation will soon begin to materialize. The most natural level where this could occur is $26k. There are other support areas around $24,700 and $24,800. These are the spots where BTC has traditionally found buying interest that helped reverse the downward movements that the market was experiencing. The approval of a spot BTC ETF could rally the place back to $30,000, but users will probably have to wait until 2024 for that.