Bitcoin
Bitcoin forms a signal that is generally “very bullish,” says analyst
One analyst highlighted that Bitcoin has once again risen above the cost basis of short-term holders, a sign that could be bullish for the asset.
Bitcoin is back above the price realized by short-term holders
As explained by CryptoQuant Community Manager Maartunn in a new publish At X, BTC recovered the Realized Price from short-term holders. The “Realized Price“here refers to an indicator that, in short, monitors the average cost basis of investors in the Bitcoin market.
When the value of this metric is higher than the spot price of the cryptocurrency, it can be assumed that the average holder in the industry is carrying some unrealized profit. On the other hand, the indicator being below the BTC price implies the dominance of losses in the market.
In the context of the current discussion, the Realized Price of the entire user base does not matter, but only of a part of it: the short-term holders (STHs). STHs refer to Bitcoin investors who have purchased their tokens in the last 155 days.
This cohort constitutes one of the two main divisions of the BTC sector based on holding time, with the other part of the market being known as long-term holders (LTHs).
Now, here is a chart showing the trend of Bitcoin’s realized price specifically for this group over the past year:
As visible in the chart above, the spot price of Bitcoin has fallen below the realized price of STHs over the past month, meaning that this group has entered a state of net loss.
After spending some time below the line, however, the cryptocurrency rose above the metric with the latest rally, thus bringing this group back into profit.
“This is usually a very bullish sign,” Maartunn notes. The chart shows that the last time the asset broke above this level after a long stay below it was last October. This surge back above the line kicked off a run that would eventually result in the coin setting a new all-time high (ATH).
As to why BTC breaking above the STH Realized Price has historically been bullish, the answer lies in investor psychology. STHs, which are relatively inexperienced hands, can be sensitive to price movements. More specifically, they are likely to show a reaction when their average cost basis is retested.
When these investors are bearish, they may decide to sell when the price rises to their cost basis, as they may worry that the rise will not last. Similarly, they react by accumulating more instead during bullish periods, as they may see their cost basis as a profitable point to buy more.
As BTC managed to break above this line recently, it does not seem like STHs are offering resistance now and hence a bullish sentiment is still dominant among them.
BTC Price
Bitcoin had recovered above $66,000 yesterday, but the coin has since seen some pullback as its price has now dropped to $64,800.
Featured image by Dall-E, CryptoQuant.com, chart by TradingView.com