In crypto trading lingo, the word “consolidation” refers to the timeframe during which a crypto asset is situated between two different levels. Market trends and chart patterns can offer contradictory information during this time, and the only thing that determines the end of this trend is a definitive break, either above or below this level. During consolidation, the price moves neither upwards nor downwards but rather sideways. However, although the name might suggest consolidation always brings gains, losses, and corrections can also occur in the aftermath of a stagnant trend.

Bitcoin is currently going through such a phase at the moment according to investors and analysts, most of whom have concluded that the current consolidation is one of the largest to have ever occurred in the ecosystem. The current year started off positively for digital gold, with the launch of the much-anticipated exchange-traded funds. Many investors were excited about the prospective gains and where the price will go next after BTC reached a new all-time high on its own, ahead of the halving.

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Capital inflows

Capital inflow is the amount of digital assets that are deposited into crypto exchanges. They occur when investors buy, sell, or trade cryptocurrencies and move funds across different wallets. Since March, the Bitcoin blockchain has recorded a considerable decrease in capital inflows. As a result, the price has remained stuck in a consolidation phase. This trend occurred right after the gains of the new all-time high dissipated. As of September 26th, Bitcoin is still entrenched in the consolidation phase and doesn’t show any sign of leaving anytime soon.

The halving strengthened the consolidation even further, but investors consider this to be a standard response. Historically, stagnation has always followed halving events, but the ultimate result is considerable gains. The situation is different this time, and previous patterns appear unable to provide that much of an indication because the Bitcoin marketplace is fundamentally different. BTC broke its own price records before the halving occurred, something that has never happened before. The arrival of the NFTs and Ordinals has also changed the way in which investors relate to the market.

Moreover, although the price is stagnant, Bitcoin is still quite close to its highest levels ever. This has been interpreted as another reason why moving past this level to achieve more growth hasn’t occurred yet. The resistance level is powerful, and surpassing it is naturally difficult.

Downside

Another metric investors have been looking at is the spot price, which has recorded downswings that were far more intense than those of the movements recorded by the capital outflows. The short-term holders, the demographic that held bitcoin for fewer than 155 days, saw their market gradient turn negative, while the realized price gradient continued to be positive but started trending much considerably lower.

The current consolidation period is rare in Bitcoin history but not unprecedented. The last time this phase took so long was during the 2019-2020. Before this consolidation stage, the marketplace recorded a very strong rally in the second quarter of 2019. The scenario can be likened to the growth recorded at the beginning of the year in the BTC ecosystem. A more comprehensive analysis of the current stagnation reveals that short-term holders, especially those who held their tokens for a period between a week and three months, play a significant role in the current market situation.

Data shows that newer investors have been dealing with significant financial pressure since June 2024 as unrealized losses continue to mount and become increasingly difficult to deal with. However, some investors remain optimistic since the pressure is significantly lower than the one of the 2020 Covid crash.

Contraction

In economics, a contraction is a phase of a business cycle during which finances are in decline and which typically takes place right after a peak in the business cycle. Economists typically see a contraction as taking place when there has been a decline for at least two consecutive quarters, followed by a recession. Many investors currently believe that the cost basis of some traders is pulling prices lower, a scenario that can be characterized as a net capital outflow from BTC.

Those who have had their Bitcoin for a period between a week and a month saw their cost basis plummet below that of the investors who have had their tokens for anywhere between one and three months. The former cohort is sometimes referred to as “fast trace,” while the latter is also known as “slow trace.” This is a clear indicator that the marketplace is dealing with a net outflow regime. The consensus is that this metric shows that a sustainable market reversal is in the works.

However, this trend is still in its earliest stages, as positive momentum continues to build. Moreover, in spite of the difficulties they have experienced, data shows that the confidence levels of newer investors remain solid. In order to get a more comprehensive view of how the market shifts have impacted STHs and their portfolios, market intelligence, and research companies have examined the gap between the cost basis of those who are spending and that of all new investors.

The findings revealed that the losses were still relatively low when put into perspective and weighed against the conditions of the last few months and the cost basis of the holdings these investors have. As such, the realized losses cannot be considered an overreaction, and there is, comparatively, much higher confidence in the marketplace compared to previous bearish trends.

Bitcoin has not been performing as well as investors have hoped, but that doesn’t mean the market is doing badly overall. In fact, BTC is the asset with the best performance level of the year, and adoption rates continue to rise, especially among institutional investors. Yet, it remains just as essential as ever for investors to have a comprehensive strategy that can help them retain value and keep their portfolios profitable. While some losses are to be expected in any trading venture, maximizing gains is something all investors want.

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