Main Points:
- Bitcoin surged by 12% this week, approaching a potential all-time high.
- Over 94% of Bitcoin’s circulating supply is in profit, triggering concerns of increased profit-taking.
- Historical patterns suggest that once 94% of supply is profitable, selling pressure tends to rise.
- Long-term holders (those who’ve held for more than 155 days) may start to cash out.
- Glassnode data reveals $11 billion in realized profits over the past week, including a $5.6 billion spike in a single day.
- Despite the strengthening U.S. dollar index (DXY) and market momentum, profit-taking could slow Bitcoin’s price ascent.
Bitcoin’s Recent Surge and the Potential Roadblocks
Bitcoin’s recent performance has been stellar, with a 12% rise this week alone, leading to heightened optimism about a new all-time high. However, market analysts have raised concerns about profit-taking, which could dampen the potential for Bitcoin to break past its previous record.
Bitcoin’s circulating supply is showing strong signs of profitability, with over 94% of the coins in circulation currently in the green. Historically, when this threshold has been breached, it tends to signal increased selling pressure from profit-takers. The data from Glassnode points to a critical moment where long-term holders, usually seen as patient and strategic, might start realizing gains, adding downward pressure on the market.
The Profit-Taking Phenomenon: Historical Patterns
The 94% threshold of profitable supply has proven to be a key marker in Bitcoin’s history. Whenever such a high percentage of the supply enters a profitable state, waves of selling activity tend to follow. This phenomenon is tied to the nature of long-term holders, who strategically accumulate during price downturns and sell when prices rise. While these long-term holders have been relatively quiet during previous market rallies, the current situation suggests they may now see an opportunity to cash in.
At the time of writing, long-term holders have about 14 million BTC in total, with only 500,000 of those coins currently at a loss. This figure highlights the immense potential for profit-taking if long-term holders decide to sell a portion of their assets.
Short-Term Holders and Market Dynamics
Short-term holders, who typically have less experience and lower risk tolerance, currently hold around 235,000 BTC at a loss. While this is a relatively small amount compared to previous months, it does indicate that recent buyers may not yet have seen significant returns on their investments. However, these short-term holders are less likely to influence the market compared to the vast majority of long-term holders.
The data shows that short-term holders are more reactive to price movements, often selling off in a panic when prices drop. This group’s behavior could add volatility to the market in the coming weeks, especially if profit-taking by long-term holders triggers a downward trend.
Realized Profits on the Rise: Market Implications
According to Glassnode’s recent data, realized profits have surged to over $11 billion in just the past week, signaling that some investors have already begun to lock in gains. On October 8 alone, realized profits reached $5.6 billion, marking the highest daily profit-taking since May.
The increase in realized profits indicates that more traders are choosing to sell as Bitcoin approaches key resistance levels. This creates a self-reinforcing cycle where selling leads to further selling, causing the price to stall or even decline before it can reach new heights.
Momentum in the Face of a Strong Dollar
Despite the potential headwinds caused by profit-taking, Bitcoin’s current momentum remains impressive. One of the most notable aspects of this rally has been its resilience in the face of a strengthening U.S. dollar. The U.S. dollar index (DXY), which measures the dollar against a basket of other currencies, has risen above 103.5, yet Bitcoin has managed to hold its ground.
This is particularly noteworthy because the last time the dollar was this strong—back in August—Bitcoin suffered a sharp drop from $65,000 to $49,000. The fact that Bitcoin has avoided a similar decline this time suggests that there may be new factors at play in supporting its price, even in the face of a strong dollar.
Bitcoin’s Dominance and Market Dynamics
Another indicator of Bitcoin’s market strength is its rising dominance. Bitcoin’s market dominance has climbed close to 60%, a level not seen since April 2021. This increase in dominance signals that Bitcoin is outperforming other cryptocurrencies, particularly altcoins, which have struggled to keep up with its recent gains.
As Bitcoin’s dominance rises, it further solidifies its position as the primary asset in the cryptocurrency market. However, this could also lead to liquidity being drained from other assets, potentially exacerbating selling pressure in the broader market.
Long-Term Outlook: Caution Amid Optimism
While the short-term outlook for Bitcoin remains positive, investors should be cautious about the potential for increased volatility as profit-taking accelerates. The market is currently in a delicate balance, with strong momentum being countered by the growing risk of sell-offs from both long-term and short-term holders.
Market participants should keep a close eye on the behavior of long-term holders, who have historically been the driving force behind Bitcoin’s biggest price moves. If these holders begin to sell in significant numbers, it could trigger a correction that delays Bitcoin’s ascent to a new all-time high.
A Critical Moment for Bitcoin
In summary, while Bitcoin has shown remarkable strength in recent weeks, the road to a new all-time high is likely to be a bumpy one. Profit-taking is a natural part of any market cycle, and with such a large portion of the supply in profit, it’s reasonable to expect some selling pressure in the near term.
However, the underlying momentum in Bitcoin’s favor should not be ignored. The resilience shown in the face of a strong dollar, combined with rising market dominance, suggests that Bitcoin still has the potential to reach new heights, even if it faces some temporary setbacks along the way.
