Bitcoin has seen a decline over the past day, taking the asset's price below $67,000. Here is the historical support level the asset could reach next.
Bitcoin is now not far from the realized price for the short term holder
As analyst James Van Straaten pointed out in A mail On
The “realized price” here refers to an on-chain metric that tracks the cost basis of the average investor in the BTC market. This indicator is based on the “maximum achieved” model of the cryptocurrency.
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When the spot price of an asset is greater than the realized price, it means that investors are holding some net unrealized profits at the moment. On the other hand, a currency value under the measure indicates the dominance of losses in the market.
In the context of the current topic, the realized price of a particular sector is of interest: Short Term Holders (STHs). STHs include all investors who have purchased their coins in the past 155 days.
Below is a chart showing the trend in the realized price of Bitcoin STH over the past few years:
As shown in the chart above, the realized price of Bitcoin STH rose rapidly during the rally towards the all-time high (ATH) price earlier in the year. This trend makes sense, of course, as STHs represent new investors in the market, who had to buy at higher prices as assets rose, thus pushing the group average higher.
Since BTC's post-ATH consolidation phase of March, the index's uptrend has slowed, but its value is increasing nonetheless. After the latest increase, the gauge approached $64,000.
Now, how important is the realized price of STHs? Historically, this indicator has taken on its role as a major support and resistance line for the cryptocurrency.
During bullish periods, this measure can facilitate down formations for the cryptocurrency, thus keeping it above itself, while bearish trends generally see the line acting as a barrier preventing the coin from escaping above it. Shifts beyond this level generally reflect a reversal trend for the currency.
This clear pattern has likely held because STHs, being relatively inexperienced hands, can be quite reactive. Cost basis is an important level for any investor, but this group, in particular, can be more vulnerable to panic when retesting their cost basis.
When market sentiment is bullish, STHs can decide to buy more when the price falls to an average cost basis, believing that the drawdown is merely a “pullback” opportunity. However, in bearish stages, they may react to this retest by panic selling instead.
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The chart shows that Bitcoin found support around this line during the crash at the end of April/beginning of May, implying that bullish sentiment is still dominant.
With the price of BTC falling below $67,000 in the past day and the realized price of STH closing at $64,000, it will be interesting to see how the potential retest will play out this time.
Bitcoin price
At the time of writing, Bitcoin is trading at around $66,800, down over 3% in the past week.
Featured image from Dall-E, Glassnode.com, chart from TradingView.com