As a seasoned crypto investor with battle scars from numerous market corrections, I’ve learned to brace myself for volatility and remain calm amidst the storm. Bitcoin‘s recent tumble below $100,000 was no exception. However, the insights gleaned from on-chain metrics provide a glimmer of hope.
Bitcoin’s surge above $100,000 didn’t last long; within just 24 hours, it plummeted below that level. This sharp drop of about 14% over the past week was primarily due to investors, particularly long-term holders, cashing out their profits.
Based on a Bitfinex Alpha analysis, indicators such as realized profit and continuous future funding rates suggest that the market is becoming more stable, with less pressure to sell for profit.
BTC Slumps as LTHs Take Profits
Last week’s drop in Bitcoin prices led to roughly $1.1 billion worth of liquidations across both long and short positions on prominent exchanges. Bitfinex highlighted that approximately one tenth of this decline took place within just eight minutes, marking the most significant correction within a sub-hour span since March 2024 and the biggest such event since before the election.
As an analyst, I’m reporting that this recent event ranks among the most significant liquidations in USD terms since the FTX collapse in November 2022. Interestingly, about half of these liquidations were tied to Bitcoin positions, making it the second-largest USD-notional long liquidation event for Bitcoin trading pairs. In Bitcoin’s context, around 4,350 Bitcoins were liquidated, placing this day among the top four highest daily liquidations since 2019.
While the mid-term forecast for Bitcoin maintains a positive trend, its long-term investors have been selling off their assets at a more gradual rate.
The rapid decrease in Bitcoin’s price has slowed down the pace at which Long-Term Holders (LTHs) are distributing their coins; therefore, it’s uncertain where the market is headed. Nevertheless, declining funding rates and low realized profits indicate that stability may be on the rise. These indicators provide insights into the demand for leveraged trading and selling pressure within the market.
BTC to Find Equilibrium at New Level
The cost associated with keeping an ongoing bitcoin futures contract open, known as funding rates, increased significantly during Bitcoin’s climb towards $100,000. However, they didn’t reach the highs seen in March. As funding rates are currently stabilizing, it’s predicted that Bitcoin’s mid-term price fluctuations may be less extreme due to a growing sense of caution among investors, leading to a more balanced level of investment.
If funding rates decrease significantly, it could suggest that Bitcoin traders are gradually reducing their excessive long positions on leveraged trading, which might result in a more equitable market. Conversely, an uptick in funding rates may indicate that investors are increasing risk on their long positions and that there’s renewed interest in speculative buying.
In simpler terms, since profits are currently low, investors might not sell off as much, reducing the impact of future price drops. This could help Bitcoin’s price stabilize, finding a balance between supply and demand.
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2024-12-10 10:00