Glassnode: Bitcoin supply is becoming increasingly tight, and long-term holders are obviously willing to hoard the currency.

Original author: Glassnode, UkuriaOC

Original compilation: Deep Chao TechFlow

Bitcoin supply has historically been tight, with long-term investors holding record amounts of Bitcoin and accumulating at an impressive pace. In this article, we will explore this situation using several on-chain supply heuristics and indicators.

Long-term Bitcoin holders gradually grow

Digital asset price performance has been impressive this year, as we reported last week (See WoC Issue 44). Despite this, long-term Bitcoin investors have continued to hold on, with the relative proportion of circulating supply held for more than a year hovering at all-time highs for several periods.

• 🔴 Last active supply in past 1 year: 68.8%

• 🟡Last active supply in past 2 years: 57.1%

• 🟢 Last active supply in past 3 years: 41.1%

• 🔵 Last active supply in past 5 years: 29.6%.

The illiquid supply metric, which measures the supply held in wallets with the smallest spending history, also reached an all-time high of 15.4 million BTC. Changes in illiquid supply often coincide with withdrawals from exchanges, suggesting that investors continue to withdraw their Bitcoin into wallets, with more than 1.7 million BTC withdrawn since May 2021.

This is reflected in the monthly rate of change in non-tradable supply, which is currently in the midst of a multi-year period of net growth.

We see a similar pattern in the Change in Net Holders Position indicator. Vaulted Supply has been experiencing a consistent round of inflows since June 2021, especially when 3AC and LUNA-UST tumbled following the sharp selling in June 2022.

This metric reflects the overall trend in Bitcoin supply, as investors accumulate and hold their Bitcoins and avoid trading.

differences of faith

The supply for longer-term investors (LTH) 🔵 is near an all-time high, while for shorter-term investors (STH) 🔴 the supply is almost at an all-time low. This interesting dynamic shows growing tension in Bitcoin’s supply, as existing holders become increasingly reluctant to sell their coins.

As we did beforeReportAs mentioned in , LTHs typically wait for the market to break through new all-time price highs before increasing distribution. This process can be seen through the massive decline in supply during the 2021 bull run, with a corresponding rise in STH supply, and inflows to exchanges.

If we calculate the ratio between long-term and short-term investor supply, we can see that it has hit a new high since July 2023. This clearly demonstrates the extent of the divergence between dormant and active supply, underscoring the significant tension in supply.

The Activity-to-Reserve Ratio (A 2 VR) is a new metric that neatly describes this divergence at the macro level. It measures the historical balance of activity and inactivity in units of investor holding time (usually measured in coin days or coin blocks).

• An uptrend indicates that long-term currency holders are spending, and a steeper uptrend indicates active distribution.

• A downtrend indicates that investors prefer to keep their coins inactive, and a steeper downtrend indicates an acceleration of this behavior.

The A 2 VR indicator has been in a downward trend since June 2021, and after June 2022, the slope of the downward trend has increased significantly. This indicator has now reached levels seen in early 2019 and late 2020, both of which preceded significant market uptrends. It also suggests that the boom of the 2021-22 cycle has completely disappeared from the market.

Another angle to assess investor activity is to analyze their spending behavior. The sell-side risk ratio is a powerful tool for assessing an investors absolute profit or loss relative to asset size, as measured by realized market capitalization. We consider this indicator according to the following framework:

• A high value indicates that investors, overall, are selling the coin at a large profit or loss, relative to its cost basis.

• Low values ​​indicate that most coins spent are close to breakeven, implying the exhaustion of profit and loss within the current price range.

In this case, we only consider the short-term investor cohort, as they are one of the main drivers of daily price action. After the recent move to $35,000, the sell-side risk ratio has risen sharply from its all-time lows, suggesting that investors in this cohort may be taking profits in the near term.

However, for the long-term investor cohort, while their sell-side risk ratio has increased slightly, it remains very low against a historical backdrop. The current structure of this indicator is similar to that of 2016 and late 2020, both periods when total Bitcoin supply was relatively tight.

Comprehensive accumulation

The previous set of metrics considers Bitcoin supply primarily in terms of the coin’s overall holding years and maturity. Another perspective is to consider the physical size of the supply. The Cumulative Trend Score metric, which helps track supply based on physical size, has seen an unusual dynamic since late October last year.

Here, we can see a trend of net inflows across all groups this year🟦, which is undoubtedly the most obvious example this year. We can see that the market encounters resistance when the vast majority of groups experience net outflows🟥, while when the market rises there is a balanced trend of net inflows🟦. This phenomenon seems to indicate that investor confidence is growing and participant behavior is changing.

If we only consider smaller entities, such as small holders (<1 BTC), medium holders (1-10 BTC), and large holders (10-100 BTC), we can see that their Accumulation patterns are very important. The rate of balance growth for this subgroup is currently equivalent to 92% of new mined supply and has remained elevated since May 2022.

cost basis

Finally, we can use the UTXO realized profit distribution (URPD) to identify areas where the cost base is densely concentrated, as well as price areas where relatively few coins are traded. We can see four areas of interest relatively close to our current spot price.

Part A: There is significant supply accumulation between $26,000 and $31,000 during the second and third quarter of 2023.

Part B: There was a “gap” between $31,000 and $33,000, and the price quickly moved through this area.

Part C: In the current price range, between $33,000 and $35,000, there is a considerable amount of supply that has been traded recently.

Part D: Approximately 620,000 Bitcoins from the 2021-22 cycle with a cost basis of just over $35,000 to $40,000.

Finally, we can add color to the URPD distribution by dividing holders into long-term 🔵 and short-term 🔴 categories. We note that most short-term holders of the coin are now profitable, with most having a cost basis between $25,000 and $30,000. The increase in STH seller risk ratio coincides with previous “profit taking” events that moved coins to new investors within the current price range.

Overall, this suggests that the $30,000 to $31,000 price range is a key area to watch as this is the upper limit of the largest supply and cost base clusters. Considering that there are almost no coin transactions on the road from $35,000 to $30,000, this makes it interesting to see the market reaction if the price returns to $30,000. This is also relevant to us WoC 44 is consistent with the true market average price presented in , which is our best estimate of the active investor cost basis.

Summary and conclusion

Bitcoin supply has historically been tight. Currently, many supply indicators describe a state of “coin inactivity” reaching multi-year or even all-time highs. This shows that despite strong price performance this year, Bitcoin is still being held for the long term. With expectations of the April halving and positive momentum in U.S. spot exchange-traded funds (ETFs), the coming months are shaping up to be exciting for Bitcoin investors.