Bitcoin Profit Taking Ramps Up But Bulls Buy The Dip

Key points: 

• Profit-taking near Bitcoin’s range highs aligns with traders’ previous reaction to new all-time highs. 

• Dip-buying near key liquidation zones and consistent institutional investor demand suggest the sell-pressure won’t last long. 

Bitcoin’s (BTC) abrupt sell-off from its $124,474 all-time high seemed like a routine outcome at first, especially considering that a portion of traders will always take profit at new highs, and a separate group will choose to open shorts at the same time.

Addressing the recent sell-off, Bitwise European Head of Research, Andre Dragosch, posted the above chart and said, 

“NOTE: Yes – we have seen increased profit-taking (by short-term holders) lately. But they have become smaller over time, too.” 

That said, the 6.72% correction below $115,000 is perhaps a bit deeper than most anticipated, leading some analysts to predict further decline to $110,000 and below. 

In comments to Cointelegraph, Hyblock co-founder and CEO Shubh Varma explained that: 

“Over the past week, we’ve seen a clear pattern of liquidity dynamics driving Bitcoin’s weekend price action. Going into the weekend, liquidity built up on the downside (Image 1), creating visible pools of potential liquidation targets. As the weekend wrapped up, that liquidity was swept (Image 2), reinforcing the recurring theme of thin weekend markets being more vulnerable to liquidity grabs.”

Varma said that at the same time that these “liquidity grabs” took place, “supply started to emerge in the orderbook and onchain.” 

“Large ETH unstaking events have added to available supply. Yet, during the weekdays, demand from digital asset treasuries (DATs) has remained strong. Several institutions announced major BTC and ETH purchases last week, with demand not only meeting this supply but far exceeding it, helping fuel the upside move.”

The catch is Wall Street closes shop for the weekend, and according to Varma, “institutional demand appeared to dry up, leaving orderflow imbalances exposed.” 

“We saw this in both the orderbook and slippage metrics (Image 3). Liquidity sat below, slippage spiked, and both 1% and 2% bid-ask depth flipped bearish. This combination triggered a cascade that swept the highlighted liquidation zones.”

When asked how Bitcoin fared during Monday’s surprise drop below $115,000 and whether the chance of additional downside was high, Varma shared the following chart and said, 

“Massive amounts of open interest opened up around that same time as where liquidity was swept. It will serve as good support, because both longs and shorts opened there, and shorts are currently trapped.” 

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.