Bitcoin Faces Potential Downturn As Profits Are Taken, Glassnode Data Shows

Experts are raising a cautionary flag for Bitcoin BTC/USD investors, suggesting the market may be entering a period of volatility and price correction.

What Happened: Bitcoin pared its gains from a high of around $68,000 early Thursday morning. It's currently trading at $66,550 levels — up about 3% over the last 24 hours.

According to a Glassnode analysis, the current market conditions, characterized by significant gains in investor portfolios, historically lead to a phase where profit-taking begins to escalate.

"We’ve got enough green in everyone’s portfolio that people historically speaking have started to take profits," a Glassnode analyst noted.

The firm's data reveals a decline in the supply held by long-term holders, who appear to be capitalizing on the market's strength by realizing profits at an unprecedented rate.

"Over seven days, we’ve seen long-term holder supply declining, and realized profits have hit a new all-time high, $3.5 billion per day," the analyst stated, underscoring the magnitude of the sell-off.

This trend of profit-taking necessitates a significant influx of capital, to the tune of $3.5 billion, to absorb the coins being sold.

The analyst pointed out, "So that really means that we need $3.5 billion worth of inflows into the asset to acquire those new coins."

Also Read: Can Crypto Escape Wall Street's Ghost? How 'Overnight Effect' In Traditional Markets Affects Bitcoin And Ethereum

Why It Matters: This requirement poses a substantial challenge, even in a market that has grown accustomed to large-scale investments following the introduction of Bitcoin exchange-traded funds (ETFs).

Glassnode's analysis also touches on the Bitcoin AVIV (Active Value to Investor Value) ratio, a metric indicating the market is moving into a more volatile phase.

"It makes sense for us to bump our head at this point and we’re also moving into a more volatile period," the analyst remarked, referring to the historical tendency of the market to experience sharp rises followed by equally rapid corrections.

The firm uses the MVRV and AVIV ratios, a metric used to gauge market frothiness, as a sign of potential volatility, to illustrate the cyclical nature of the Bitcoin market, suggesting that investors should brace for potential resistance and turbulence ahead.

"Historically speaking, the market can go up quite sharply, but then also correct almost as sharply as we saw… in our MVRV and AVIV ratio," the analyst concluded, advising market participants to remain vigilant and informed about the current cycle's dynamics.

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