CryptoQuant analysts found that long-term bitcoin investors (this group of traders includes those who bought bitcoins more than 155 days ago) have started to take profit. Why is this happening? What are the reasons and consequences of such a move?
Market participants should exercise caution and not rely entirely on the indicators of one particular company. CryptoQuant uses proprietary analysis tools based on blockchain data, but their methodology may contain errors and shortcomings.
It’s impossible to ascertain with absolute accuracy whether long-term bitcoin holders are making a profit, as we do not know the motives of each individual investor. Blockchain transactions provide limited information.
Companies like CryptoQuant and Fidelity Digital can draw conclusions based on their observations and calculations, but these conclusions should not be seen as absolute truth. Ultimately, the decisions of individual investors are conditioned by their personal strategies.
The reasons for closing positions may differ for each investor, but, as a rule, profit taking happens for several reasons:
1. Many holders sell part of their bitcoins from time to time to diversify their investments and distribute risks.
2. After a lengthy uptrend, some investors prefer to take some profit for personal needs or reinvestment.
3. CryptoQuant analysts write that historical peaks of the Spent Output Profit Ratio (SOPR) often preceded declines in the bitcoin price. Some investors could take profit out of fear for the upcoming correction.
Profit taking by long-term holders can have different consequences. On the one hand, this creates selling pressure and can trigger a short-term price correction. On the other hand, the inflow of fiat can be a positive signal for the market, confirming investors’ confidence.
Investors should make informed decisions, considering different sources of data and opinions, while not relying completely on any one of them. Healthy skepticism and diversification are the keys to sustainable investment.