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Bitcoin languishes as long-term investors cash out

Increased selling pressure raises concerns about the sustainability of the current bullish momentum

After hitting the heady heights of nearly $100,000 last week, bitcoin has been a little under the weather over the past week, as it languishes in the mid-$90,000s.

On Thursday, bitcoin was hovering around $96,500, having bounced back from just below $90,300 earlier in the week following its worst run since Trump’s electoral success, Reuters reported.

The world’s largest cryptocurrency has surged 37 per cent, briefly eying the $100,000 milestone, on hopes of a more crypto-friendly regulatory environment under US President-elect Donald Trump.

The last time bitcoin surged as much was February, when money flooded into new bitcoin exchange-traded products.

So what went wrong?

According to analysts, while some investor feel there is a risk of speculative excess, some others look at a often-overlooked aspect — that of bitcoin’s long-term holders (LTHs)

These investors are often hailed as the market’s steadfast bulls, but have recently displayed an unexpected shift in behaviour. “These seasoned investors, who typically hold their coins for over 155 days, have begun to engage in significant profit-taking, a trend that could potentially signal an impending market correction,” Mohamed Hashad, Chief Market Strategist, Noor Capital, said in a note.

Historically, LTHs have been renowned for their unwavering commitment to holding bitcoin, even during periods of extreme market volatility. However, the recent surge in bitcoin’s price has seemingly tempted even the most patient investors to cash in on their gains, Hashad said. “On-chain data reveals a notable uptick in the 30-day spent supply of Bitcoin by LTHs, indicating a substantial volume of coins being transferred and potentially sold,” he added.

This increased selling pressure from LTHs, coupled with the cumulative value of LTH distribution since November 2022, raises concerns about the sustainability of the current bullish momentum. “While bitcoin has experienced significant price appreciation in recent months, the market may be reaching a point of saturation, where further upside potential is limited,” Hashad said.

A potential market turning point

The behaviour of LTHs often serves as a leading indicator of market trends. “When LTHs begin to sell, it typically signals a loss of confidence in the market’s future trajectory. This could lead to a cascade effect, as other investors may follow suit, exacerbating the selling pressure and driving prices lower,” Hashad said.

However, it’s important to note that the cryptocurrency market is highly volatile, and sudden price swings can occur without warning. “While the current trend of LTH selling may suggest a potential correction, it’s equally possible that the market could rebound and resume its upward trajectory. As investors navigate this period of market uncertainty, it’s crucial to adopt a disciplined approach to risk management. Diversification, dollar-cost averaging, and setting realistic profit targets and stop-loss orders can help mitigate potential losses. Additionally, staying informed about market developments and conducting thorough research can empower investors to make informed decisions,” Hashad advised.

While the long-term outlook for Bitcoin remains optimistic, it’s essential to be mindful of short-term market fluctuations. “By understanding the underlying factors driving price movements and maintaining a balanced perspective, investors can position themselves to capitalize on both bullish and bearish trends,” Hashad said.

Christopher Lewis, analyst at FXEmpire, believes that bitcoin is in the middle of a potential consolidation area with the $90,000 level underneath and the $100,000 level above as resistance. “If we pull back from here, the $90,000 level, I should say is support. And then after that, we have $80,000 where the 50 day EMA resides,” he wrote in a blog post.

Lewis thinks a pullback to the $80,000 level would probably be healthy. "But I think at the very least, you’re probably going to see some sideways action. That being said, if we pull back from here, the $90,000 level, I should say is support. And then after that, we have $80,000 where the 50 day EMA resides," he added.