Definition ∞ Cost Basis Divergence describes a situation where the average acquisition price of a digital asset for different groups of holders varies significantly. This disparity can occur due to differing entry points into the market, specific investment strategies, or the timing of market cycles. Observing this divergence helps analysts understand potential areas of profit-taking or strong holder conviction. It provides insight into the distribution of unrealized gains or losses across the investor base.
Context ∞ The state of Cost Basis Divergence is a frequently analyzed on-chain metric, particularly in volatile market conditions, as it provides clues about investor sentiment. A key discussion point involves how different cohorts of holders might react to price movements based on their original purchase prices. A critical future development involves monitoring how these cost basis distributions shift during market corrections or significant price rallies, influencing overall market stability.
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