How strong is the floor to Bitcoin's price?
A volatile few weeks for the cryptocurrency market have instilled fear in the minds of investors, many of whom hadn't anticipated the short-term sell-off. While Bitcoin's price had recovered somewhat to trade around $47,700 at press time, research from Chainalysis suggests that Bitcoin's floor prices are stronger than before.
Philip Gradwell, Chief Economist at Chainalysis,
Cryptocurrency prices have had a third week of volatility. To understand the likely floor of these swings, I analyse the price levels that attracted demand from different types of investors in the past, so are likely to generate demand if they were reached again. pic.twitter.com/GfSIFpyT9q— Philip Gradwell (@philip_gradwell) March 5, 2021
that the floor of these recent price swings can be determined by analyzing the price level at which different types of investors entered the market.
Gradwell found that investors who acquired at least 1,000 BTC since the end of November 2020 have bought 1.7 million BTC at an average price of $35,000 per Bitcoin . "This recent and rapacious willingness to buy at this price level likely puts a floor on the Bitcoin price of at least $35k," the analyst went on to observe.
According to him, the market has changed radically since the end of November. Prior to the same, larger investors held 1 million BTC at an average purchase price of $14.8k. However, the same set of investors has since entered the market to hold more Bitcoin at double the cost, with the Chief Economist adding,
"There is a far stronger floor to the price than ever before."
Gradwell's analysis can be further supported by a recent report from CoinMetrics. The crypto-market analytics research firm found that on-chain indicators showed signs of a key metric resetting, one with positive implications for Bitcoin.
Bitcoin's Spent Output Profit Ratio (SOPR) is a ratio of the price at the time a UTXO is spent to its price at the time of creation. Essentially, this estimates whether holders are selling at a profit or at a loss.
CoinMetrics found that while the BTC SOPR dropped below one on 27 February for only the second time since October 2020, implying that investors were capitulating and selling at a loss, it rebounded back above one on 28 February. What did this mean? Well, it suggested that the market is stabilizing once again, a finding consistent with Gradwell's findings.