Bitcoin (BTC) traders’ hopeful optimism appeared to be dissipating in the first week of March as key on-chain metrics offered resistance.
Now, bitcoin price is threatening a retest of $22,000 and a wave of short sellers would benefit if that happens. If the short sellers’ strike price falls, some analysts believe that the bitcoin price could fall as low as $19,000.
Bitcoin options by strike price. Source: coin jar
A handful of analysts are still forecasting BTC price to hit $25,000 in the short-term on-chain data, highlighting a few reasons for price resistance at higher levels.
The realized price metric highlights profit taking
Market participants’ concerns about Federal Reserve rate hikes and high inflation are severe macro headwinds for the Bitcoin price, and this is causing investors to consider the time value of money from BTC investments. To measure TVM on-chain, Bitcoin holders can be divided into groups based on the time they have held BTC and the average value of the initial cost.
Investors who bought BTC in the last 6 months took advantage of the early bear market conditions and have an average realized price of $21,000, earning them a profit. The average market realized price of all BTC holders is $19,800 and is also profitable at the moment.
Conversely, BTC held over 6 months has a higher realized price than the rest of the market groups at $23,500. If Bitcoin breaks above $23,500, holders who have seen little TVM return for 6+ months may pressure a breakout as they become restless to lock in gains.
Bitcoin delivery cost basis by time held. Source: Glassnode
Liquidity inflows are increasing but pale compared to 2022
Bitcoin price is highly sensitive to interest rates and the US Dollar Index (DXY), weighing on risky assets. The negative effects of these factors are great for short sellers, but bad for bitcoin price. The best way for bitcoin price to withstand pressure from short sellers is for new long liquidity and spot buyers to enter the market.
Analyzing net alternating flows is a good way to gauge new liquidity, and currently this metric reflects a 34% increase since early 2023, but still lags the annual daily average of $1.6 billion.
Bitcoin Exchange Volume. Source: Glassnode
Currently, there is a general consensus among analysts that the ability to inject new liquidity into the crypto market has been hampered by a crackdown on banks that back crypto-focused businesses.
The surge in Bitcoin unrealized gains mirrors previous cycles
While some bitcoin investors realized gains, looking at the net unrealized gain/loss (NUPL) metric shows positive on-chain signals. The NUPL metric shows the difference between unrealized Bitcoin gain and unrealized loss within the BTC supply.
According to Glassnode, NUPL metrics as of March 6 show:
“Since mid-January, the weekly average of the NUPL has shifted from a state of net unrealized loss to a positive state. This suggests that the average bitcoin holder now holds net unrealized gains on the order of about 15% of the market cap. This pattern resembles a market structure that corresponds to transitional phases in previous bear markets.”Bitcoin NUPL. Source: Glassnode
While Bitcoin momentum may have paused in mid-February in 2023 and plenty of headwinds remain, there are positive signs that the transition out of the bear market bottom is near.
The views, thoughts, and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not contain any investment advice or recommendation. Every investment and trading move involves risk and readers should do their own research when making a decision.
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