Bitcoin Surges, Signalling Interesting Developments

The cryptocurrency market, accustomed to being Cinderella since its formation 14 years ago, occasionally comes into focus, especially when intriguing events unfold in the global financial markets. Currently, we are witnessing a shift from excessively expensive money to moderately expensive ones. Bitcoin, which has reached $43,000, is now one and a half times higher than it was 12 months ago. Simultaneously, the price of gold has also risen. All of this is happening against the backdrop of cautious hints about possible reductions in interest rates by leading central banks. While many view cryptocurrencies with skepticism, the fact remains that Bitcoin persistently moves towards a trillion-dollar capitalization, sparking at least some interest.

A recent market report from Bitcoinist.com highlighted that short-term Bitcoin holders have recently been actively cashing in profits by selling BTC for nearly $4.5 billion in the last four days. Short-term Bitcoin holders are investors who acquired BTC in the last 155 days. This event marks their highest profit since November 2021, as they rid themselves of more than 100,000 coins. Is this a significant amount compared to the 19 million Bitcoins in circulation? Not really. Is it substantial considering that these Bitcoins were purchased from July 1 onwards? Not too much too, as the daily turnover during this period fluctuated above $10 billion, meaning more than 300,000 BTC per day.

However, short-term holders are known for actively speculating, reacting swiftly to market sentiments, usually responding to fear or excitement.

The surge in Bitcoin's price to over $41,000, and even higher at $44,000 momentarily, prompted these holders to capitalize on their profits. Tracking their activity through volumes of funds flowing into exchanges revealed a surge during the recent increase, indicating significant deposits from short-term investors on centralized exchanges. Although not all deposits imply selling, the influx of $4.5 billion indicates a noticeable trend of profit-taking, i.e., selling crypto coins at peak price levels.

Yes, the market is already slowing down, but Bitcoin maintains a tendency to grow, fluctuating between $43,000 and $44,000. This reflects high demand amid ongoing selling, i.e., profit-taking by short-term investors. It seems that this resilience indicates a trend for further growth beyond the current surge.

Ice-Cold Confidence of Long-Term Investors

Certainly, not only short-term buyers might have considered selling Bitcoin and cashing in profits, but no. Data from the popular HODL Waves indicator shows that those who bought Bitcoin at the end of 2020 are still holding onto their coins. And they have no plans to sell them. Although in December 2020, Bitcoin fluctuated between approximately $15,000 and $25,000, earning a 100% profit over three years is not a bad perspective. But these investor-buyers keep holding onto BTC.

Moreover, the community of long-term Bitcoin investors, also known as long-term holders (LTH), has no intention of reducing their Bitcoin portfolios, despite the growth in 2023. Understandably, those who bought from mid-February 2021 to early April 2022 might not want to sell yet. It was a period of relatively expensive Bitcoin, sometimes reaching above $60,000. But why haven't buying periods since then encouraged profit-taking?

This is not happening. Furthermore, there is a gradual and significant increase in a certain age group, as recorded by the HODL Waves service, which groups BTC owners by the time since each coin's last movement. The community of those holding Bitcoin for more than a year has significantly grown over the last 12 months. Specifically, the relative weight of long-term investors for the last two to three years is increasing. In December of last year, this group accounted for about 8% of Bitcoins; now their share is over 15%.

This anchor indicates a willingness to wait for higher quotations and expectations of higher Bitcoin prices in the future. Why not?

PHOTO: Against the backdrop of the price chart (black line), you can see, through the colored stripes, how bitcoins gradually moved into the portfolios of increasingly long-term holders. SOURCE: The Gaze, Glassnode, Getty Images

So Why Now?

Two questions irk investors and not just them. First: is it too late to get in? This concerns those who are hesitant about jumping in or not. Second: is it time to exit? This concerns those who are already on board. These even have specific names. FOMO – the state when you paranoidly fear that a cool opportunity is passing you by. By the way, scammers play this coolly when they say, "Don't miss your chance." And the second state is called YOLO, meaning "you only live once," bordering on a state where it doesn't seem rational to invest, better to spend money on your current desires.

Two years ago, cryptocurrency prices reached their peak, as already mentioned here. Bitcoin (BTC) was above $60,000. Then things worsened, and then they got even worse. And then they became catastrophically dreadful when BTC plummeted to $15,000 after the FTX exchange collapse. It was so ugly that we probably don't want to remember it.

But later, prices began to recover. This happened for most of 2023, but there were waves – ups and downs. Until mid-October, Bitcoin did not exceed $27,000 for quite a long time, jumping above $30,000 on a few days.

But at the end of November, the market flared up, fueled by optimism about Bitcoin ETFs (these are exchange-traded funds specializing in Bitcoin investments) and expectations of interest rate cuts.

The explanations are very simple: Bitcoin ETFs are instruments through which large institutional investors—pension and other investment funds, even banks—can invest in cryptocurrency. So, the existence of Bitcoin ETFs massively expands the circle of potential buyers and, therefore, increases demand.

Expectations of interest rate cuts promise the emergence of large volumes of cheap money in the market, so it should also lead to an increase in demand for Bitcoin and, therefore, contribute to the growth of BTC quotes.

Of course, there will be crashes along the way—exchange collapses, harsh regulatory decisions regarding the circulation and investment of cryptocurrencies. In those moments, the market will crumble, roughly like the scandalous fall of the FTX exchange. So, it will definitely not be boring.

But whether to invest or not – no one will confidently give such advice, even for very large sums.