By Yasin Ebrahim
Investing.com – Bitcoin has suffered a tumultuous week that has landed it in bear market territory. But the selling will subside as institutional investors are well versed in the 'hodl' and are unlikely to be spooked by a "long overdue" correction, according to an expert.
BTC/USD fell 6.5% to $49,980 on Friday, and entered bear market territory after falling about 22% since its recent peak on April 14.
The scramble for answers in the midst of the crypto bloodbath offers neither solace nor clarity. Several factors have been attributed to the selling over the past week including news of President Joe Biden's tax hike, fears of increased regulation and a rout in mining activity in China following a power outage in Xinjiang.
In the end, however, a more simple explanation appears to be resonating with some well-known experts: Profit-taking.
"The parabolic rise of bitcoin over the last number of months has left the asset somewhat vulnerable to profit taking, with a period of consolidation now likely in the short term," David Wachsman, CEO and Founder of Wachsman said in an email.
The conviction to cash in on bitcoin's run is perhaps more acute among retail investors, who traditionally invests over a shorter time horizon than their institutional counterparts.
The deep dive into the plumbing of the Bitcoin network supports the view that retailers may have been spooked by the selloff, and abandoned the crypto ship.
The short term holder (STH) SOPR metric, an on-chain metric, fell below 1.0 by the "most significant extent since the $29k dip in back January," according to on-chain market intelligence provider Glassnode. "This metric tracks the amount of profit (> 1.0) or loss (< 1.0) realised by coins spent on-chain, however it considers only new entrants to the market (those holding coins younger than 155-days)."
Institutional investors have long been heralded as the missing piece of the puzzle for cryptocurrencies as many saw their participation as key to add credibility to bitcoin as an asset class.
While some institutional investors remain on the sidelines, the main players including JPMorgan (NYSE:JPM), Goldman Sachs (NYSE:GS), and Morgan Stanley (NYSE:MS) have jumped on the crypto bandwagon.
Unlike their retail counterparts, this band of investors are known to have staying or 'hodl' power (in crypto parlance), and will likely help bitcoin find its footing amidst the selloff.
"Markets still look bullish in the long term, however, with large institutional investors increasingly making more significant allocations in BTC unlikely to be spooked by market corrections," Wachsman added.