On-chain data suggests minimal resistance for Bitcoin, which could facilitate a recovery towards a new all-time high (ATH).
Almost All Bitcoin Investors Are Back in the Green with Latest Rally
According to data from the market intelligence platform Inside the blockresistance appears weak in the price ranges ahead. In chain analysisThe strength of support and resistance levels is based on the number of investors who last purchased their coins at them.
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The graph below shows what cost basis distribution on the Bitcoin network looked like at the time of the analytics firm’s post.
On the chart, the dot size corresponds to the addresses that purchased their coins within the corresponding range. As is apparent, when IntoTheBlock shared the data, all the price ranges ahead had small dots, while those below had large dots.
This suggested that few remaining investors in the market had a cost base higher than the spot price. In other words, there were not many holders left at a loss.
Since then, however, BTC has seen some pullback to the first of the big circles. However, at the current price, most holders should still be in the green.
For any investor, their cost basis is naturally an important level, and they are more likely to take action when a retest occurs. Loss-making investors may wait for this retest to break even and escape with their initial investment.
A few investors selling at their breakeven point has no consequences for the entire market, but if a large number of them spread their cost basis within a narrow range, then perhaps a reaction large enough to cause price fluctuations could emerge.
This is why the strength of support and resistance price levels is related to the number of investors who have their cost basis in on-chain analysis.
As investors in losses may react to a retest of their cost basis by selling, large red dots could be potential sources of resistance. However, BTC no longer has significant hurdles, so the price could be set to reach higher levels.
As investors with losses react by selling, those with profits may see the retest of their purchase level as an opportunity to buy more. Thus, the green dots could be centers of support for the cryptocurrency. Since BTC has fallen to one of these green dots, it is possible that the coin could use the cushion to move into the relatively clear red bands.
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Something to keep in mind, however, is that while there may not be many investors desperate to exit at its breakeven point, there is also a different hurdle that BTC could face: profit taking.
With an extreme majority of investors in profits, many would likely be tempted to reap some of their gains as the coin moves towards a new ATH. It remains to be seen whether demand will be able to absorb this potential sell-off.
BTC Price
Bitcoin had approached the $70,000 level earlier in the day, but the coin has since fallen to the $67,800 mark.
Featured image by Dall-E, IntoTheBlock.com, chart by TradingView.com