Those who set their sights on the Bitcoin course this year were not disappointed. More and more investors from various asset classes are discovering the advantages of BTC for themselves. Fundamentally, we see that there is a significant increase in the number of people holding Bitcoin. What initially sounds very positive for the price may also turn out to be a danger.
In this article, we show what dangers lurk for the Bitcoin price and how on-chain data can help us in this analysis.
What are the dangers for the Bitcoin Course?
Since 2020 we have seen a continuous outflow of Bitcoin to Exchanges. This means that more BTC is constantly flowing out of the exchanges than in. This is initially to be seen as positive, as it reduces the available supply of Bitcoin.
The scarce supply on the Exchanges in turn has a price-driving effect on the Bitcoin price. On the other hand, it may also cause confusion that – despite the price increases of BTC – Bitcoin is flowing away from the exchanges. After all, if you don’t keep your crypto-currencies on the Exchanges, you may be safer on the move, but you can’t trade them either. In other words: Owners cannot simply sell and thus participate in profits on the Bitcoin exchange.
However, this HODLer mentality can also pose a threat to the Bitcoin exchange rate. Let’s take a look at the idea behind this and how it can be substantiated:
As a basis we use the following graphic from Chainalysis.
When are profits realised?
In the chart above we see the distribution of investors‘ profits in USD. An example: Almost 5 million addresses are currently in a profit zone between 5 and 25%.
So far, so good. So where is the supposed risk we interpret as being for the Bitcoin price?
We get the answer when we take a look at the red bar on the right side of the chart. Here we see the number of addresses that are over 100% in the profit zone. In other words: These are the addresses that have at least doubled their stakes in US dollars.
Is 100% growth in the Bitcoin rate already a reason to sell?
This number has increased strongly since the beginning of the year and now lies between 6 and 7 million addresses. Despite the strong HODL mentality, the question of realising profits arises.
When will investors take their profits? – Is a doubling of the profit already sufficient? At this point one should not only think of the „small“ private investors, but also of institutional investors.
If many investors decide to take their profits with them, this can have a negative influence on the Bitcoin price. Here it is important to understand that we are talking about probabilities and possibilities. At the moment we do not see any indications of this.