Key points to remember
- An all-time high of 12.7 million Bitcoins hasn’t budged in over a year.
- This translates to two-thirds of the circulating supply.
- Only 7% of Bitcoins have moved in the last month.
- History shows that long-term holders tend to rise when prices fall, which may seem counterintuitive.
- The real story is a bit more nuanced, as falling trading volumes in bear markets provide a hidden variable that affects the data.
One of the intriguing things about the blockchain is the public availability of all sorts of network statistics.
Much is made of Bitcoin’s fixed supply cap, with the final supply of 21 million Bitcoin expected to be reached by 2140. The bulls are using this as an example to explain why the asset is programmed to rise. price, because its scarcity will inevitably push the asset higher.
Watching on channel here on https://coinjournal.net/we noticed a quirk in this data.
Long-term holders continue to grow
Despite the bloodbath that cryptocurrency has been in 2022, long-term holders have continued to accumulate. Of the 19.27 million Bitcoins currently in circulation, 12.77 million Bitcoins have not moved for more than a year, an all-time high.
That’s a pretty significant number. In the following chart, I have plotted these Bitcoins against two other categories: first, Bitcoins that have moved in the last month (traders), and second, Bitcoins that have not moved for more than a year. months but which have changed over the last year (average – mandate holders).
Currently, we have 66% of Bitcoin that hasn’t been moved in over a year – again, an all-time high. The previous peak was in September 2020, when the mark reached 63%. Before that, the previous peak appeared in April 2016 at 60%.
Another 27% of Bitcoins have not moved in the last month, while the remaining 7% can be considered as traded Bitcoins, moving in the blockchain in the last month.
Why are long-term holders increasing?
The obvious question is, why? Why are we seeing long-term holders grow so substantially while the market is battered?
Well, I decided to plot the percentage of long-term holders against the Bitcoin price. And the result is quite interesting – there does seem to be at least a moderate inverse relationship between price and long-term holders. In other words, when the price goes down, the long-term holders go up. Hmm.
But in truth, it makes sense. As the price drops, volumes and market interest tend to dry up. With that comes fewer transactions and, by definition, fewer holders under the one-month threshold.
While the narrative of long-term holders absorbing increasing amounts of Bitcoin’s supply is often painted in a bullish light, I’m not sure that tells the whole story when considering this historical pattern.
Of course, it’s a positive thing that the number of bitcoins that haven’t moved in over a year is increasing, as it shows that these long-term holders have tended not to capitulate on drawdowns.
But a healthy trading market and high liquidity are associated with a bull market, which is part of why we see an inverse relationship here. Look no further than trading volume in 2022, which fell 46% on centralized exchanges compared to the previous year – that’s trillions of dollars of activity that are no longer present.
« Trading volumes have crashed in the crypto space. This has led to a drop in activity and it is not surprising that the share of recently traded bitcoins is therefore declining. The analysis of long-term holders is a more nuanced matter than the crude assumption that more Bitcoins in long-term wallets is bullish and therefore the price will rise. This is just not what we have seen historically”said Max Coupland, director of CoinJournal.
I will continue to monitor all on-chain activity as the market is certainly showing more life in these early stages of 2023, with weaker inflation data giving the market momentum for us to pivot high interest rates earlier than expected. It will therefore be interesting to keep an eye on the on-chain dynamics.
But the next time someone says it’s obviously bullish that there’s less bitcoin thrown in the markets, maybe remember that it’s a bit more complex than that.
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