What are new and experienced investors doing with bitcoin at its peak?
The bitcoin market is currently experiencing a rather unusual situation. The price of this cryptocurrency has skyrocketed over the past few months and has reached an all-time low. This has caused profit taking on the part of many market players. The total profit on bitcoin sales exceeded two billion dollars in one day.
Newcomers to the market: panic or strategy?
This profit figure is simply enormous. Its value made many people nervous - what if this is the beginning of a massive sell-off? However, if we look at this situation in more detail, it no longer seems so unambiguous. Many such sales were made by new investors who purchased Bitcoin no more than a year ago. Seeing a real chance to make a profit, inexperienced traders started selling their assets. But those investors who have held their assets for more than a year, continue to wait and do not hurry to get rid of them, hoping for further growth of this cryptocurrency.
The ratio of profitable volumes owned by long-term holders to unprofitable ones increased sharply at the end of the fall. This indicates a decrease in the number of those coins that are in loss. This can be explained by a significant increase in prices.
Euphoria stage: price maintenance or preparation for correction?
As practice shows, such behavior of the market is evidence that it is at the stage of euphoria, when the price is kept at a high level for several months. But in order for this state to be maintained, a significant, steady inflow of demand is required. In case of its weakening, the market is capable to be at the stage of correction or consolidation.
Most likely, experienced holders are not in a hurry to get rid of BTC, because they are convinced that this stage of bitcoin growth is not the final, but intermediate, so bitcoin will continue to grow until it reaches its maximum mark.
In connection with all this, a reasonable question arises: on whom does the market formation depend now? Why do novice investors feel the desire to get rid of bitcoins, while experienced traders calmly wait and do not take any action, regardless of such high prices? By understanding this situation, it will be possible to understand the future of bitcoin.
Why did bitcoin rise, what led to an increase in the price of this cryptocurrency?
Increased demand for bitcoins and an increase in their liquidity led to the beginning of profit taking by many market participants. This was the reason for setting a new record on November 22. On that day, 443 million dollars of profit was realized.
At this time, the market saw large-scale liquidations of speculators, primarily people who played with leverage during the period of high volatility. As a result of such liquidations, short-term price fluctuations intensified, which is typical for the stages when historical maximums are being updated.
This market behavior indicates an impending influx of new liquidity, despite the continued strong demand for bitcoins. This is necessary for the market to adapt to the volume of fixed profits, maintaining its tendency to further growth.
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Selling risks, profit redistribution
The risk-to-sell ratio in the market is currently high. This indicates a significant realization at this stage by long-term holders of the profits they have received, despite their calm behavior. With the help of this indicator, an assessment of the total volume of losses and realized profits recorded by investors relative to the volume of assets is carried out.
If the values of this coefficient are at a high level, it indicates that investors sell off their assets with a significant loss or profit compared to the initial costs. This happens with increased volatility and forces the market to find a new equilibrium point.
The aforementioned ratio is now moving towards its upper boundary. This is a confirmation of the pronounced profit realization taking place in the market at this point in time. However, the current value of the ratio is still lower than in previous bull market cycles. This means that despite the sell-off currently underway, the market has not yet reached a point where assets are fully reallocated.
Prevalence of coins that have a short shelf life
Coins that were purchased recently - within the last six months or year - account for 35.3% of the total realized gains. This is an indication that the current market is most influenced by those investors who entered it not too long ago.
The bulk of this volume is likely to have been generated through the use of a strategy called “swing trade”. When using this strategy, investors buy assets at reduced prices, and then sell them in case of price increase, fixing their profit on short intervals.
In numerical terms, the volume of realized profits in dollars is as follows:
- 6 months to one year: 12.6 billion;
- one to two years: 7.2 billion;
- two to three years: 4.8 billion;
- three to five years: 6.3 billion;
- more than five years: 4.8 billion.
What can this information be used for?
With this data, the behavior of different groups of investors and market dynamics become clearer. People who have entered this market recently should take into account the risks of short-term price fluctuations, without rushing to sell at the peaks. Investors with experience should continue to carefully monitor market trends with a long-term strategy, as the growth that has occurred may continue.
