Profit-Taking, Short-Term Holder Selling, and Slowdown in Institutional Demand Contribute to Price Decline
- Bitcoin prices dropped from $73K to $62K due to profit-taking by traders, selling from short-term holders, and a slowdown in demand from large holders, permanent holders, and ETFs.
- The recent sell-off reset traders’ unrealized profits to zero, a typical bottom signal in bull markets, with prices nearing the trader’s realized price of $58K.
- Investors have reduced their Bitcoin exposure ahead of the upcoming halving, potentially waiting for the Middle East situation to deescalate.
The price of Bitcoin has recently experienced a significant decline, falling from $73K to a three-week low of $62K. According to a recent report, this drop in price can be attributed to a combination of factors, including strong profit-taking from traders in the perpetual futures market, selling from short-term holders, and a slowdown in demand from large holders, permanent holders, and ETFs.
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Profit-Taking and Short-Term Holder Selling
One of the primary drivers of the recent price decline has been the profit-taking by traders in the perpetual futures market. As tensions between Israel and Iran escalated in the Middle East, traders closed their long Bitcoin positions to realize profits, resulting in a decrease in total open interest from ~250K Bitcoin to ~220K Bitcoin. Additionally, the volume of sell orders in the perpetual futures markets has begun to dominate buy orders, with the taker Buy Sell Ratio falling below one.
Short-term Bitcoin holders, defined as entities that have owned Bitcoin for less than six months, have also contributed to the selling pressure by realizing profit margins as high as 35% after prices declined towards $64K. This selling from short-term holders is not compatible with increasing prices or price bottoms.
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Slowdown in Institutional Demand
In addition to the profit-taking and selling by short-term holders, the report also highlights a slowdown in demand growth from large holders (whales), permanent holders, and ETFs. The month-over-month growth in the total Bitcoin balance of large holders has slowed down to 8% from a record-high of 11% reached in mid-March. Similarly, Bitcoin purchases from permanent holders have decreased from a pace of 204K Bitcoin on a monthly basis to 161K Bitcoin currently, while demand from ETFs in the USA has also slowed down significantly from its March peak.
Market Cycle and Outlook
Despite the recent price decline, the report suggests that the sell-off was necessary to reset traders’ unrealized profits to zero, which is typically a bottom signal in bull markets. Moreover, prices are now closer to the trader’s realized price of $58K, which has acted as a support level during this bull market.
From a long-term cyclical perspective, Bitcoin remains in a bull market phase, according to CryptoQuant’s Bull-Bear Market Cycle Indicator. However, the indicator did signal that the bull market had entered an overheated phase when prices increased above $70K.
The report concludes that investors have reduced their exposure to Bitcoin ahead of this week’s halving and may be waiting on the sidelines for the situation in the Middle East to deescalate before re-entering the market.
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