The ratio of all Bitcoins transferred at a profit or loss dipped below one for the first time in more than 2 weeks on February 9th, according to data from crypto analytics firm Glassnode. This marked the first time in over two weeks that the ratio had fallen below 1.
The so-called Bitcoin Realized Profit/Loss Ratio dropped to 0.9189 as Bitcoin’s price plummeted to a new near-three-week low below $22,000 amid concerns about 1) a regulatory crackdown in the United States that is for the time being focused on United States-based cryptocurrency staking service providers but could soon spread to another place of the industry and 2) concerns that the Federal Reserve might end up raising interest rates more than expected this year.
That means that the Bitcoin market lost more money in terms of US dollars on Thursday than it made. Before Bitcoin’s 5% drop in one day on Thursday, it had already dropped 5% from its previous monthly highs in the $20,000s, but the Realized Profit/Loss ratio was still positive. That showed that the drop was probably caused by people who bought Bitcoin earlier in the year, before or during its big run-up.
But the fact that the Realized Profit/Loss ratio turned negative on Thursday suggests that a bigger part of the selling pressure probably came from traders who had gone long in the last few weeks but were forced to sell because they lost money. Future position liquidation data from cryptocurrency derivatives analytics firm coinglass shows the same thing. On Thursday, the value of Bitcoin long positions that were sold went up to $64.6 million, which was the most in over three months.
The price of bitcoin is currently consolidating just above the important $21,500 resistance-turned-support region as the week comes to a close, and traders are wondering if all of the short-term “weak hand” investors have been eliminated. Whoever had their stop somewhere in the low $22,000 area is now, without a doubt, out of the running.
But even if most of the short-term speculators who bought in the mid-$22,000 range and above have now left the market, those who bought earlier this year for less than $20,000 may still be taking profits, which could keep prices down. If Bitcoin’s price keeps going down this weekend or next week, but the Realized Profit/Loss ratio goes back up above 1, that would mean that this group is taking more profits.
That could be seen as a sign that the price will go down since it shows that long-term investors aren’t sure if the 2023 rally will last. But Bitcoin bulls shouldn’t worry right now. Even though Bitcoin dropped on Thursday, Coinglass data shows that Bitcoin leverage funding rates haven’t changed. They are still modestly positive. “Positive funding rates suggest speculators are bullish, and long traders are paying short traders for funding,” says coin Glass.
Even though the options markets have changed to reflect a slightly higher risk of a short-term drop in the next week, many traders are still confident that the recent pullback is not the start of a drop back to the lows of 2022. In fact, the fact that Bitcoin’s 180-day 25% delta skew is still above zero and close to recent highs shows that options markets are still sending positive signals about Bitcoin’s long-term outlook.
Given that more and more on-chain and technical indicators are now pointing to the fact that the bear market of 2022 is probably over and that even if the Fed does a few more interest rate hikes, the end of tightening is still in sight, it still makes sense to expect a positive bias for the year. But if the US Consumer Price Index data next week surprises to the upside, Bitcoin could be in for more short-term pain.
A drop to less than $20,000 is possible, which would likely cause short-term speculators who went long in the $20,500-$21,500 supply area to be stopped out again. But expect dip buyers to be ready to buy a lot of Bitcoin as it gets close to its 200-Day Moving Average and Realized price, which are both around $19,700/800.
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