2023-9-7 16:56 |
Bitcoin has been weak as of late. The world’s biggest cryptocurrency has fallen below $26,000, trading at an 11-week low.
The drop comes amid a period of unusual calm in markets. Following a jump in mid-June amid a slew of ETF applications, Bitcoin had been stubbornly rangebound around the $29,000/$30,000 mark until last week.
However, the price dip has not affected a trend that feels inexorable at this point: the incessant growth of long-term holders.
The below chart from Glassnode highlights this (Glassnode defines long-term holders by a logistic function centred at an age of 155 days and a transition width of 10 days). It shows that 14.7 million Bitcoin are now held by the cohort, translating to 75% of the total circulating more.
When we look at long-term holders historically, this is interesting because the cohort normally falls during periods of price increase. As we can see on the next chart, when price rises, long-term holders fall. While the log scale (necessary when plotting the Bitcoin price back as far as 2010) clouds it a bit, if you look at 2023, you will see that both price and long-term holders are rising – a different phenomenon than years gone by.
Is this bullish for Bitcoin?The knee-jerk reaction may be to conclude that this is bullish for Bitcoin. Long-term holders hoarding an increasing number of coins will constrict the available supply and squeeze the price upwards.
Of course, that is partially true, but there are other factors at play here. We mentioned earlier that, in the past, the cohort of long-term holders has normally fallen during periods of price expansion. This makes sense, as not only does profit-taking occur, but trading volume tends to increase across the board during these periods.
This time, however, we are seeing less volatility, with Bitcoin’s 55% price rise year-to-date coming via a gradual increase rather than sudden spikes as we have seen in the past. Trading volume and liquidity are also extremely thin, further contributing towards Bitcoin staying put and the amount held by long-term holders increasing.
Hence, like most things in markets, the answer to whether this is bullish or not is more nuanced than simply declaring “less supply, price go up”.
Moreover, if we look at the total number of active addresses, the number has not changed much this year, lending further weight to the theory that, at least in part, long-term holders are increasing because activity is down.
However, both things can also be true. The reality is that Bitcoin does have a capped supply, and if there is less of that supply on the market, the price can rise more easily.
On the flipside, thin liquidity means less capital is needed to move prices, and so moves to both the upside and downside and amplified. Hence, there are two sides to this coin (pardon the pun).
Either way, the upward trend in the cohort of long-term holders is an interesting one to track. It has been rising nearly incessantly for over two years now. The only period of respite was in the summer of 2022.
We see this in the next chart when we zoom in. The number of long-term holders fell from 13.71 million addresses on the eve of the Terra crisis on May 9th to 13.39 million on July 22nd, a fall of 2.3%.
However, even this dip of 2.3%, on the grand scheme of things, is far from seismic. Moreover, the trend has resumed its upward trajectory ever since.
It will be an interesting trend to keep an eye on going forward, whether it is bullish or spurious.
The post On-chain roundup: long-term Bitcoin holders increasing appeared first on Invezz.
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