Bitcoin Price Enters “Transitional Phase” According to BTC Chain Analysis
The hopeful optimism of Bitcoin (BTC) traders appeared to fade in the first week of March as key assets on the chain offered resistance.
Now the Bitcoin price is threatening a retest of the $22,000 level, and a wave of short sellers will cash in if that happened. If short sellers’ strike price hits, some analysts believe Bitcoin price could fall as low as $19,000.
A handful of analysts still project the BTC price to reach $25,000 in the short-term, on-chain data highlighting a few reasons for price resistance at higher levels.
Realized pricing highlights profit taking
Market participants’ concerns over the Federal Reserve’s interest rate hikes and high inflation are strong macro headwinds against the Bitcoin price, prompting investors to weigh the time value of money for BTC investments. To measure TVM on-chain, Bitcoin holders can be put into groups based on the length of time they held BTC and the average acquisition cost.
Investors who have bought BTC over the past 6 months have benefited from the early bear market conditions and have an average realized price of $21,000, making them profitable. Average market realized price across all BTC holders is $19,800, also currently in profit.
Conversely, BTC has held for over 6 months a higher realized price than the rest of the market groups at $23,500. Once Bitcoin reaches above $23,500, the holders who have seen little TVM for over 6 months will come back, potentially seeing pressure for a breakout as they become anxious to lock in profits.
The liquidity supply increases, but pales in comparison to 2022
The Bitcoin price is highly reactive to interest rates and the US Dollar Index (DXY) which places a burden on risk assets. The negative effect of these factors is great for short sellers, but bad for the Bitcoin price. The best way for the Bitcoin price to withstand short selling pressure is for new long liquidity and spot buyers to enter the market.
Analyzing net exchange flows is a good way to measure new liquidity, and currently this metric reflects a 34% increase since the start of 2023, but it is behind the annual daily average of $1.6 billion.
For now, the general consensus among analysts is that the ability to onboard new liquidity into the crypto market has been hindered by a crackdown on banks that support crypto-oriented businesses.
The rise in unrealized Bitcoin profits mirrors previous cycles
While some Bitcoin investors realized profits, looking at the Net Unrealized Profit/Loss (NUPL) metric shows positive signals on the chain. The NUPL calculation shows the difference between unrealized Bitcoin profit and unrealized loss within the BTC supply.
According to Glassnode, NUPL measurements on 6 March show:
“Since mid-January, the weekly average of NUPL has changed from a state of net unrealized loss to a positive state. This indicates that the average Bitcoin holder now has a net unrealized profit of approximately 15% of market capitalization. This pattern resembles a market structure that corresponds to transitional phases in previous bear markets.”
While Bitcoin’s 2023 momentum may have paused in mid-February and many headwinds remain, there are positive signs that the transition out of the deepest phase of the bear market is near.
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