Bitcoin Loss Taking Spikes, Why This Could Be Bullish

On-chain data shows Bitcoin loss-taking transaction volume has spiked recently. Here’s why this could turn out to be bullish for the asset’s price.

Bitcoin Loss-Taking Volume Has Been More Than The Profit-Taking One Recently

According to data from the on-chain analytics firm Santiment, traders are currently taking losses at twice the rate of profits. The relevant indicator here is the “ratio of daily transaction volume in profit to loss,” which, as its name already suggests, tells us about how the per day Bitcoin profit-taking volume compares with the loss-taking one.

Something to note is that this metric only measures profits and losses that have been realized (“taken”). This only happens when an investor moves or sells their coins at a price different than what they bought them at. Coins that are carrying some profit or loss, but are yet to be sold, are said to be holding an “unrealized profit/loss.”

Related Reading: Woes For Bitcoin And Ethereum As Price Weakens, Which Direction Will Prevail?

When the value of this metric is positive, it means the profit-taking volumes are currently overwhelming the loss-taking ones. Such a trend suggests that the investors as a whole are realizing some profit with their selling right now.

On the other hand, a negative value implies that losses are dominating the market currently, and hence, a majority of the holders are participating in loss realization.

Now, here is a chart that shows the trend in the ratio of daily transaction volume in profit to loss for Bitcoin, as well as for Ethereum, over the last few months:

Bitcoin Profit Loss Ratio

As displayed in the above graph, the ratio of transaction volume in profit to loss had been highly positive for both Bitcoin and Ethereum just a while back when the prices had been surging.

This spike in profit-taking made sense as investors generally like to harvest some gains when the price observes rapid growth. Following this profit selling, however, the rally came to a halt and the cryptocurrencies have been mostly consolidating since then.

Recently, the indicator’s value has plunged for both Bitcoin and Ethereum and for the first time in five weeks, it has turned red. This implies that the holders are now participating in mass loss-taking.

The plummet has been sharper for BTC, with the metric’s value falling to about -0.45. This value suggests that loss realization is currently happening at a rate almost double that of the profits.

Santiment notes that this trend could actually be a good sign for the asset as it shows the FOMOers who bought at high prices have started to give up on the rally. The coins that these holders are selling may end up in the hands of investors with a stronger conviction, hence providing a more solid bullish foundation.

BTC Price

At the time of writing, Bitcoin is trading around $27,900, up 1% in the last week.

Bitcoin Price Chart