Are Long-Term Holders Fueling Bitcoin Price Slump?

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As a seasoned market analyst with over two decades of experience in tracking financial trends, I have witnessed numerous market cycles that mirrored the one we are currently observing in Bitcoin. The recent price correction is not unfamiliar territory to me, and while it may be disheartening for some investors, it presents an opportunity for those who understand the market dynamics.

Based on current market figures, Bitcoin is currently being traded at approximately $94,500. This represents a 13% decrease from its record high of about $108,000. The recent price adjustment is the most substantial since early November, following the U.S. elections and President-elect Donald Trump’s victory.

Market experts have suggested that the actions of long-term Bitcoin investors (LTHs) and short-term investors (STHs) significantly impact the current price trends. Their choices to buy or sell have a direct effect on the market’s overall behavior.

The Role of LTHs and STHs in Bitcoin Bearish Trajectory

Investors classified as long-term holders by Coindesk are those who have owned Bitcoin for a minimum of 155 days. Traditionally, these investors have amassed significant amounts of BTC during periods when prices were lower. They usually choose to dispose of their assets when the price experiences a significant increase.

Based on data analyzed by Glassnode, long-term Bitcoin holders (LTHs) have consistently been transferring their Bitcoin. From about 14.2 million Bitcoins held in mid-September, LTHs reduced their total holdings to around 13.2 million Bitcoins by December.

On Thursday, one of the biggest Bitcoin transactions took place, with Long-Term Holders (LTHs) selling approximately 70,000 BTC in a single day. This sale represented the fourth largest sell-off of the year. These massive sell-offs have been putting pressure on the price because when they happen during periods of high Bitcoin market volatility, more Bitcoin enters the market.

For every seller, there is a buyer. Short-term holders (STHs) have held Bitcoin for less than 155 days. These traders have taken advantage of the recent price dip to buy more coins. STHs have added about 1.3 million BTC to their holdings in the past few months. 

short-term buyers are purchasing some Bitcoins that long-term holders are offloading, but their purchases don’t completely counteract the selling pressure from long-term holders. This imbalance between more selling than buying has resulted in a decrease in Bitcoin’s price, which might have led to around 10% of rapid drops in active Bitcoin wallets.

Bitcoin’s Circulating Supply and Exchange Dynamics

The total supply of Bitcoins and their trading activities on exchanges have a significant impact on the Bitcoin market. Besides the actions of Long-Term Holders (LTHs) and Short-Term Holders (STHs), these elements greatly determine the price of Bitcoin. At present, approximately 19.8 million Bitcoins are circulating, while another 2.8 million remain stored on exchanges.

It’s worth noting that the quantity of Bitcoin held on exchanges has been gradually decreasing. In fact, approximately 200,000 Bitcoins have moved off exchanges over the past few months. This decrease in exchange-held Bitcoins might suggest a reduction in market liquidity, potentially leading to increased price fluctuations.

Decrease in the number of Bitcoins being traded on exchanges might suggest that investors are keeping their Bitcoin in personal wallets instead. This could potentially mean they’re waiting for further price increases, reacting to market uncertainties, or hoping to avoid potential market swings.

As the amount of Bitcoin circulating on trading platforms reduces, the total market liquidity diminishes. Consequently, this makes the asset more vulnerable to significant price fluctuations whenever substantial trades take place.

Given the present market situation, there seems to be a fine equilibrium at play. The recent fall in prices can be attributed to changes in the supply-demand equation. Yet, the future of Bitcoin remains unpredictable.

There’s a possibility that some experts think the drop in Bitcoin’s value might be short-lived, with the price bouncing back as more investors jump in. However, others caution that the selling from long-term holders could persist, especially if the larger economic landscape continues to be unpredictable.

Nevertheless, experts urged participants tracking Bitcoin’s price movements to watch out for the behavior of LTHs and STHs investors. 

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2024-12-20 18:54