The Bitcoin (BTC) price has fallen sharply and is experiencing large losses. The Bitcoin price lost value quickly. This is also called BTC Dump. The picture shows a crumbling Bitcoin price on a descending price graph.

Those who bet on the Bitcoin price this year were not disappointed. More and more investors from different asset classes are discovering the advantages of BTC for themselves. Fundamentally, we see that there is a significant increase in the number of people holding Bitcoin. What initially sounds very positive for the price may also turn out to be a danger.

In this article, we show what dangers lurk for the Bitcoin course and how on-chain data can help us in this analysis.

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What are the risks for the Bitcoin course?

Since 2020 we have seen a continuous outflow of Bitcoin to Exchanges. This means that more BTC is constantly flowing out of the exchanges than in. This is initially to be seen as positive, as it reduces the available supply of Bitcoin.

The short supply on the exchanges in turn has a price-driving effect on the Bitcoin price. On the other hand, it may also cause confusion that – despite the price increases of BTC – Bitcoin is flowing away from the stock exchanges. Who does not hold its crypto currencies finally on the Exchanges, is safer on the way, cannot act these however also not. Differently formulated: Owners cannot sell simply and participate in such a way in profits with the Bitcoin course.

However, this HODLer mentality can also pose a threat to the Bitcoin course. Which thought is behind it and how this can be substantiated, we look at now:

As a basis we use the following graphic from Chainalysis.

Bitcoin Course Profits Chainalysis
When are profits realized?

In the chart above we see the distribution of investors‘ profits in USD.  An example: Almost 5 million addresses are currently in a profit zone between 5 and 25%.

So far, so good. So where is the supposed danger that we interpret as a threat to the Bitcoin price?

We get the answer when we look at the red bar on the right side of the chart. Here we see the number of addresses that are over 100% in the profit zone. In other words: These are the addresses that have at least doubled their stakes in US dollars.

Is 100% growth in the Bitcoin rate already a reason to sell?

This number increased strongly since beginning of the year and lies now between 6 to 7 million addresses. Despite the strong HODL mentality, the question of realizing profits arises.

When will investors take their profits? – Is a doubling of the profit already sufficient? At this point, one should not only think of the „small“ private investors, but especially of institutional investors.

If many investors decide to take their profits with them, this can have a negative impact on the Bitcoin share price. Here it is important to understand that we are talking about probabilities and possibilities. At the moment we do not see any indications of this.

However, should we see an increase in Bitcoin volumes in the future towards the Exchanges, this may be a sell signal.