Cost basis resistance refers to a price level where a significant number of investors acquired an asset, potentially acting as a barrier to further price increases. This occurs when the market price approaches the average purchase price of a large cohort of holders, particularly those who are currently at a loss. As the price nears their original entry point, these holders may choose to sell to break even, thereby increasing supply and creating selling pressure. This collective behavior can impede upward price movement, functioning as a psychological and supply-driven ceiling.
Context
In cryptocurrency markets, cost basis resistance is a frequently discussed concept, especially after market downturns. Observing large groups of investors nearing their break-even price helps analysts forecast potential selling pressure. A key aspect to watch is how decisively price action moves through these zones, indicating a shift in market control from sellers to buyers.
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