Even as Bitcoin moves through the volatile cryptocurrency landscape, investor behavior and trading activity yield important near-term structural market insights.
One of the best indicators in this regard is the cost basis distribution of Bitcoin—essentially, where different groups of investors hold their positions in relation to price. By analyzing these cost basis clusters, we get a much clearer picture of the supports and resistance Bitcoin is working off of. And then, of course, there’s the picture of what could happen next.
Support and Resistance Levels Driven by Investor Cost Basis
Recent analytics in Bitcoin’s cost basis distribution have revealed some fascinating (and perhaps unforeseen) formations that are now being associated with key price points.
For instance, on March 10, some of the most efficient traders that one can find in this market somehow managed to access nearly 15,000 BTC at the almost laughable low point of $78,000. These guys aren’t called ‘traders’ for nothing, and their moves on that day and in the days that followed showed just how timely and well-calibrated some of their buying and selling decisions can be. For the record, they sold at the almost equally laughable high of $87,000.
Yet, what we might consider the biggest takeaway from this event is that there now exists a relatively small amount of Bitcoin that is even close to the $78,000 price level. Consequently, that price point holds almost no support. When Bitcoin’s price was running at $78,000, there existed a decent amount of BTC tokens that were on watch at that price, ready to be sold if the price moved upward from that price point. Now, with the price having moved downward, that number of tokens has diminished dramatically. Therefore, if BTC attempts to re-ascend to the $78,000 level, it will have to pretty much do so without any support from above. And that’s a problem.
Support clusters have emerged at higher price levels. They are now forming a cushion for near-term Bitcoin prices. These are levels where investors have accumulated cost basis and where it seems likely that if Bitcoin were to face downward price pressure, we might see it rebound from these levels. If you want to understand where Bitcoin might find a bottom, these support levels are crucial to look at.
The first major support cluster is at $84,100, where around 40,000 BTC are concentrated. This is followed by another support zone at $82,090, with about 50,000 BTC positioned there. Finally, a third support level emerges at $80,920, where around 20,000 BTC are held in this price range. Although these levels could act as critical support points for Bitcoin in the near term, they could also be broken if substantial sell-side pressure materializes.
At higher levels, particularly around the $95,000 mark, resistance is beginning to show up. Cost basis clusters for investors have amassed here since March 24, growing by roughly 12,000 BTC. This suggests a pretty substantial number of actors in the market have bought into BTC at this price point. And from a purely technical standpoint, if we revisit $95,000, it could play out as a top again, given that the same investors who bought in here might be looking to sell and realize some gains.
Potential Structural Support Zones Below Spot Price
Though Bitcoin’s price now bobs along just above some critical support and resistance levels, it could still be in for another leg down. Should it take one, a good number of serious-seeming supports exist beneath the current spot price—strong buying levels that reflect some serious upfront conviction from obviously well-moneyed buyers. Because these supports are so well-accumulated and because they seem to be holding up, at least for now, they could serve as pressure relief zones, or as my colleague John W. Bolen describes in a recent podcast, as “stop the bleed” zones for Bitcoin.
The initial zone of possible support beneath the spot price is at about $74,000. There, approximately 49,000 BTC have been amassed. That’s the level—if we can call it that—where things look the most dicey for Bitcoin’s continued price stability. Because:
This level is approximately 15% lower than where Bitcoin is trading today. And it is the lowest level of support that the researchers have identified in a recent report.
If Bitcoin were to fall all the way to this support level, it would mean that over 49,000 BTC have been held at this price for a significant amount of time. And these investors seem to be hell-bent on not losing what they have.
Another potential support level exists at $71,000, where around 41,000 BTC are held. Like the $74,000 level, this area reflects conviction-driven accumulation and could serve as a critical floor for Bitcoin’s price if a deeper correction occurs. These lengths of supports, driven by long-term holders who have accumulated at these price points, could help to stabilize the market and provide a base for future price increases.
Conclusion
The cost basis for Bitcoin’s distribution gives us insight into the current market structure. Gaining an understanding of the basis helps traders know where to find significant levels of support and resistance. They then look to these levels to see if and when they might give way. The basis can also provide clues about where the market is likely to head next.
Currently, strong support appears to be developing in the vicinity of $80,920, $82,090, and $84,100. This is as close to a near-term cushion as is possible in a highly volatile market without the word “safety” being invoked. On the other hand, strong resistance is at $95,000.
Those who are worried about further downside can take comfort in the structural support at potential levels of $74,000 and $71,000. The strength of that support is a function of what we call conviction-driven accumulation, which happens when buyers come in and are so committed to the asset that it essentially forms a base. Sellers either don’t exist or are very weak because most people don’t want to give up Bitcoin at these prices.
In the final analysis, comprehending the distribution of Bitcoin’s cost basis is fundamental to making sense of today’s market. Investors and traders who can pinpoint these levels of support and resistance that lie just a hair’s breadth above or below the current price will be better equipped to make reasoned choices. Informed decisions could be even more critical right now since the market, always a wild card, is especially turbulent. But even in stormy conditions, these cost basis clusters do provide a kind of roadmap.
Disclosure: This is not trading or investment advice. Always do your research before buying any Metaverse crypto coins.