Enthusiastic bitcoin [BTC] Traders may have noticed that BTC volatility has dropped by a significant level. Not so long ago, BTC made big moves where prices would rise by huge margins, making it quite profitable for long-term holders. Fast forward to the present: Being a long-term BTC holder isn’t that profitable.
A recent Glassnode analysis summarized the declining profitability of long-term BTC holders. According to the analysis, long-term holders’ profitability had dropped to December 2018 levels.
This was around the same time the market bottomed during the previous bearish cycle. The report also claimed that long-term holders sold at an average loss of 42% according to the SOPR metric for long-term holders.
#Bitcoin long-term holder profitability has plummeted to levels last seen in the depths of the bear market in December 2018.
Long-term holders are selling $BTC at an average loss of 42%, indicating that issued LTH coins have a cost basis of around $32,000.
Live chart: https://t.co/sCKIzBLCTM pic.twitter.com/wEnfVzEs9I
— glassnode (@glassnode) September 29, 2022
The assessment was consistent with BTC’s performance, particularly over the past three months. The cryptocurrency has struggled to recover from the lower range and price levels above $25,000 are now a thing of the past. BTC’s recent performance also indicated greater affinity for sub-$20,000 price levels.
Additionally, BTC’s current range could explain why long-term holders are choosing to deviate from a long-term strategy. The cryptocurrency has maintained a healthy level of volatility in its current range so far.
As a result, long-term investors have exited their positions to avoid missing out on short-term gains.
BTC miners are among those affected by the shift from long-term to short-term profits. They have traditionally waited for prices to rise so they can take bigger profits, but that is no longer the case. Mining reserves have been hit by short-term sell-offs, especially in the last few weeks.
Source: CryptoQuant
Pressure on mining reserves led to an overall decline, particularly over the past 10 days. An interesting dynamic between mining reserves and foreign exchange reserves has also been observed.
FX reserves have risen on several occasions when mining reserves have fallen, creating an inverse relationship. This is because the market has been treating outflows from miner reserves as a sell signal.
The Bigger Picture
Recently, miners’ reserves have also been greatly affected by the need for miners to recover the costs of mining. They are therefore forced to sell intermittently regardless of the rise or fall of BTC. Macro factors also come into play with BTC’s price action.
Economic factors such as inflation also have a massive impact on investment decisions. For example, the market conditions that have prevailed in recent months have led to a shift from risky to risky assets.
The impact of inflation has forced many traders to exit BTC and other risky assets, with many holding the dollar instead. This further explains why the dollar has strengthened.
Inflation can take months to get under control, and this can hurt BTC’s ability to recover to its previous highs. The benefit of this situation is that the drop in long-term investor profitability to 2018 levels could indicate that the market is at the end of the current down cycle.
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