Bitcoin’s rally past the $100,000 threshold was short-lived as the leading cryptocurrency fell below the level just 24 hours later. This 14% correction over the past week was driven by market participants, especially long-term holders (LTH), taking profits.
According to a Bitfinex Alpha reportOn-chain metrics such as realized profits and perpetual futures funding rates indicate that the market is stabilizing and profit taking has decreased.
BTC Plunges as LTHs Make Profits
Bitcoin’s correction last week triggered more than $1.1 billion in liquidations in long and short positions on major centralized exchanges. Bitfinex noted that the 10% drop occurred in eight minutes, representing the largest correction in a period of less than an hour since March 2024 and the largest since the asset’s pre-election lows.
“This represents one of the largest liquidation cascades in USD notional terms since the FTX collapse in November 2022, and with half of them in Bitcoin positions, it also marked the second largest long liquidation event in USD notional terms. for Bitcoin related trading pairs. . In terms of Bitcoin itself, approximately 4,350 BTC were liquidated, marking the fourth highest daily liquidation since 2019,” the analysts explained.
Although bitcoin’s medium-term outlook remains bullish, long-term holders have continued to sell their assets at a slower pace.
The sudden drop in Bitcoin price caused a slowdown in the LTH distribution rate; Therefore, the trajectory of the market is unknown. However, falling funding rates and low levels of realized profits suggest stability is returning. These metrics provide insight into leveraged demand and selling pressure in the market.
BTC to find balance at a new level
Funding rates refer to the cost of holding a perpetual futures contract open. This metric rose during bitcoin’s run to $100,000, but did not reach the levels recorded in March. With funding rates stabilizing, bitcoin’s medium-term volatility is likely to be more contained because a more measured level of leverage is entering the market.
If funding rates continue to fall, it indicates that BTC traders are beginning to shed excessive long-term leverage, possibly leading to a more balanced market. However, a rise in rates suggests that investors are adding risk to their long positions and that there is renewed speculative demand.
Meanwhile, the low levels of realized profits indicate that any sell-off by investors would be less dramatic, and this will allow the price of bitcoin to find a balance between supply and demand.
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