The recent rally in Bitcoin’s price has caught the attention of many analysts and investors. However, in order for this rally to make a real comeback, Bitcoin might have to conquer a critical level. On-chain data reveals that the price of Bitcoin has been retesting the short-term holders’ cost basis or the realized price.
The realized price measures the average price at which Bitcoin investors acquired their coins. When the spot price is trading above this indicator, it signifies that holders are in a state of profit. Conversely, when the spot price is below the realized price, it implies that the market is experiencing a loss.
It is important to note that the realized price is not applicable to the entire investor base but can be defined only for specific segments. In this case, the focus is on the short-term holders (STHs), who are the investors that purchased their coins less than 155 days ago. Their average cost basis should lie within the price range of the past five months.
Analyzing a chart that displays the realized price of Bitcoin’s STHs over the past few years provides valuable insights. It is evident that during the latest rally, Bitcoin briefly broke above the STH realized price when it surpassed the $28,000 level. However, with the subsequent pullback, the cryptocurrency has once again plunged below this critical metric.
The STH cost basis has historically played a significant role in determining market sentiment. Breaking above the STH realized price typically indicates a bullish trend, while plunges under this level often result in bearish momentum. Furthermore, this level has acted as both support during rallies and resistance in bearish periods.
The curious pattern observed in relation to the STH realized price could be attributed to investor psychology. During rallies, if the spot price of Bitcoin drops to the cost basis of the STHs, these investors may believe that the price will eventually increase in the future. Consequently, they might seize the opportunity to buy more Bitcoin at their cost basis, anticipating profitable returns.
This extraordinary buying pressure from short-term holders could explain the support that Bitcoin finds at the STH realized price level. On the flip side, bear markets instill fear in the minds of STHs. As soon as they can break even, these investors quickly sell and exit, thereby providing resistance to the cryptocurrency.
The future movement of Bitcoin remains uncertain as it attempts to make a break above the STH realized price. The coming days will determine whether Bitcoin can surpass this critical level and sustain its position above it for an extended period. Previous attempts have been short-lived, making it important to observe if this time will be different.
It is worth noting that Bitcoin enjoyed support at this level during the rally in the first half of the year. Reclaiming the line again would be an optimistic sign for the future of Bitcoin’s price. As of now, Bitcoin is trading at around $27,400, reflecting a 4% increase in the last week.
The current rally in Bitcoin’s price is met with the challenge of conquering the critical level represented by the short-term holders’ realized price. This indicator has historically influenced market sentiment, acting as both support and resistance for Bitcoin. Understanding investor psychology and the buying and selling patterns of short-term holders contributes to a better understanding of Bitcoin’s price movement. Only time will tell if Bitcoin can successfully overcome this level and sustain its position in the market.