Bitcoin corrects as some long-term holders cash in their profits
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Bitcoin came close to eclipsing its all-time high last week only to go on to correct by 11 per cent as longer term holders, or ‘hodlers’ in crypto terminology, decided to book their profits.
In a roller-coaster ride, Bitcoin soared to $19,375 ($26,272) mid-week, only to plumb $US16,490 Friday, recovering slightly to $US17,239 ($23,375) at the end of the week.
“With the cryptoasset having finally hit a three-year high on Tuesday – just days before Thanksgiving and the blockbuster sales of Black Friday – investors in some cases have chosen to take their profits,” eToro cryptoasset analyst, Simon Peters, told Stockhead.
Bitcoin has recovered strongly since its mid-March low of around $US5,000, and someone who had bought then and sold this week would have a profit of 287 per cent.
Peters said eToro trading data showed a significant number of long position holders of Bitcoin had taken advantage of the price rally to sell and lock-in profits.
“Of all the Bitcoin positions opened on eToro at the time of the bull run in December 2017, 19 per cent of those that remain in November 2020 have been closed this month – which suggests that clients have been eagerly awaiting a change to recoup their initial investments,” said Peters.
“This week, it seems, many have done so, creating a price slide in the process,” he said.
Back in December 2017, Bitcoin peaked at $US19,783, giving the market a value of $US336 billion.
Bitcoin’s price surged 77 per cent in Australian currency and 81 per cent in US dollars from October 1 to its multi-year high last week.
“After a blistering run in the past eight weeks, a Bitcoin price correction was bound to occur either sooner or later, and the fall this week is more than sheer coincidence,” Peters said, referring to profit-taking by market players.
“All assets are vulnerable to price corrections, and technical indicators show that Bitcoin’s has been overdue after several weeks of being overbought,” he said.
The cryptocurrency expert at multi-asset investment platform eToro said he was confident new highs in Bitcoin were just a few weeks away.
“In the long term, however, I remain bullish and maintain my belief that we could see a new all-time high before Christmas,” added Peters.
Another market analyst agreed with this viewpoint.
“I think this is a correction before we break $US20,000. Other long-term on-chain indicators like BTC and stablecoin reserve say the potential buying pressure still prevails so far,” chief executive of analytics firm CryptoQuant, Ki Young Ju, told Yahoo Finance.
Looking back over the past two months, it has been an eventful time for Bitcoin and the cryptocurrency market.
Several institutional investors have climbed aboard the cryptocurrency investment train, and some hedge funds.
The market was given another boost by US company PayPal agreeing to transactions in Bitcoin and other cryptocurrencies.
In addition, the number of individual accounts holding more than 1,000 Bitcoin — which incidentally will be worth around $US17.2m ($23.3m) — has grown to around 2,200.
This indicates that significant numbers of high net worth individuals, or companies are investing in Bitcoin.
Also, investor attitudes to Bitcoin and cryptocurrencies are changing.
Other market participants have pointed to a correlation between Bitcoin’s rising price and an increasing volume of negative-yielding bonds, that is, bonds that offer a negative return to investors.
Meanwhile, Libra, a new digital currency backed 1:1 to the US dollar and linked to Mark Zuckerberg’s Facebook may be launched early in 2021, according to reports.
For more information on Bitcoin and other cryptocurrencies, Stockhead has written this guide.
*Hodler is a term for a long-term holder of Bitcoin, named after an anonymous bulletin board poster who mis-spelled the word holding, ‘I am hodling’, the poster said in a now legendary post.