Glassnode: The supply of bitcoin is becoming increasingly tight, and long-term holders are obviously willing to hoard coins

Original author: Glassnode, UkuriaOC

Original compilation: Deep Tide TechFlow

The supply of bitcoin has historically been tight, with long-term investors holding a record amount of bitcoin and an impressive rate of accumulation. In this article, we will explore this situation using several on-chain supply heuristics and indicators.

Long-term Bitcoin holders are gradually growing

The price performance of digital assets has been impressive this year, as we reported last week (see WoC Issue 44). Despite this, long-term Bitcoin investors have been holding on for a while, with the relative proportion of circulating supply hovering at all-time highs for several time periods.

• 🔴 Last active supply in the last 1 year: 68.8%
• 🟡 Last active supply in the last 2 years: 57.1%
• 🟢 Last active supply in the last 3 years: 41.1%
• 🔵 Last active supply in the last 5 years: 29.6%.

! [Glassnode: Bitcoin supply is getting tighter, and long-term holders are willing to hoard coins] (https://img-cdn.gateio.im/webp-social/moments-7f230462a9-3b72b5edd2-dd1a6f-cd5cc0.webp)

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

! [Glassnode: Bitcoin supply is getting tighter, and long-term holders are willing to hoard coins] (https://img-cdn.gateio.im/webp-social/moments-7f230462a9-531f86c1bb-dd1a6f-cd5cc0.webp)

This is reflected in the monthly rate of change for non-circulating supply, which is currently in a period of net growth over many years.

We see a similar pattern in the Net Holders Change indicator. Vaulted Supply has experienced a consistent round of inflows since June 2021, especially when 3AC and LUNA-UST plummeted after a large sell-in in June 2022.

This indicator reflects the overall trend in the supply of bitcoins, as investors accumulate and hold their bitcoins, avoiding trading.

Divergent beliefs

The supply of investors with longer holdings (LTH) is near all-time highs, while the supply of investors with shorter holdings (STH) 🔵 🔴 is almost at all-time lows. This interesting dynamic shows the growing tension in the Bitcoin supply, as existing holders are increasingly reluctant to sell their Bitcoin.

As we've mentioned in previous reports, LTHs typically wait for the market to break through new all-time price highs before increasing distribution. This process can be seen in the massive decline in supply during the 2021 bull market, while the supply of STH rose accordingly, as well as inflows from exchanges.

If we calculate the ratio between the supply of long-term and short-term investors, we can see that since July 2023, this ratio has reached a new high. This clearly demonstrates the extent of the divergence between quiet and active supply, emphasizing the significant tension in supply.

! [Glassnode: Bitcoin supply is getting tighter, and long-term holders are willing to hoard coins] (https://img-cdn.gateio.im/webp-social/moments-7f230462a9-1989e2cc0b-dd1a6f-cd5cc0.webp)

The "activity-to-stock ratio" (A2 VR) is a new indicator that neatly describes this divergence at the macro level. It measures the historical balance of "activity" and "inactivity" by the unit of time that investors hold (usually measured in coin days or blocks).

• An uptrend indicates that long-term crypto 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 A2 VR metric has been in a downward trend since June 2021, and after June 2022, the slope of the downtrend has increased significantly. This indicator has now reached the levels of early 2019 and late 2020, both of which were periods before a significant market uptrend. It also suggests that the "boom" of the 2021-22 cycle has completely disappeared from the market.

! [Glassnode: Bitcoin supply is getting tighter, and long-term holders are willing to hoard coins] (https://img-cdn.gateio.im/webp-social/moments-7f230462a9-223aea00bc-dd1a6f-cd5cc0.webp)

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

• A high value indicates that the investor is selling the coin at a large profit or loss in general, relative to its cost basis.
• A low value indicates that the coin for most expenditures is close to breakeven, implying the depletion of the "P&L" 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 rise to $35, 000, the sell-side risk ratio has risen sharply from its all-time lows, suggesting that investors in this cohort may be profit-taking in the near term.

! [Glassnode: Bitcoin supply is getting tighter, and long-term holders are willing to hoard coins] (https://img-cdn.gateio.im/webp-social/moments-7f230462a9-d5412e74c2-dd1a6f-cd5cc0.webp)

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

Accumulate across the board

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

Here we can see that there has been a trend 🟦 of net inflows in all groups this year, which is undoubtedly the most obvious example of this year. We can see that the market will encounter resistance when there is a net outflow 🟥 from the vast majority of groups, and there will be a balanced net inflow 🟦 trend when the market is rising. This phenomenon seems to indicate that investor confidence is growing and the behavior of participants 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 increase for this subgroup is currently equivalent to 92% of the new excavation supply and has remained at a high level since May 2022.

! [Glassnode: Bitcoin supply is getting tighter, and long-term holders are willing to hoard coins] (https://img-cdn.gateio.im/webp-social/moments-7f230462a9-a0c60c3a18-dd1a6f-cd5cc0.webp)

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 there are relatively few coin transactions. We can see four areas of interest that are relatively close to our current spot price.

Part A: Over the time of the second and third quarters of 2023, there is a significant accumulation of supply between $26, 000 and $31, 000.

Part B: There is a "gap" between $31, 000 and $33, 000, and the price quickly crosses this area.

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

Part D: The cost base of approximately 620, 000 bitcoins from the 2021-22 cycle is just over $35,000 to between $35,000 and $40,000.

! [Glassnode: Bitcoin supply is getting tighter, and long-term holders are willing to hoard coins] (https://img-cdn.gateio.im/webp-social/moments-7f230462a9-b75f849c59-dd1a6f-cd5cc0.webp)

Finally, we can add color to the URPD distribution by dividing holders into two categories, long-term and short-term 🔵 🔴. We note that most of the short-term holders' coins are now profitable, with most of them having a cost base between $25, 000 and $30, 000. The rise in the STH seller's risk ratio coincides with the previous "profit close", an event that transferred the coin to a new investor 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 is almost no coin trading on the road from $35, 000 to $30, 000, this makes it interesting for the market to react if the price returns to $30, 000. This also coincides with the real average market price we presented in WoC 44, which is our best estimate of the "active investor cost basis".

! [Glassnode: Bitcoin supply is getting tighter, and long-term holders are willing to hoard coins] (https://img-cdn.gateio.im/webp-social/moments-7f230462a9-965dc21863-dd1a6f-cd5cc0.webp)

Summary & Conclusion

Bitcoin supply has historically been tight. Currently, many supply indicators describe a multi-year or even all-time high of "inactivity". This suggests that Bitcoin has been held for the long haul despite its strong price performance this year. With the expectation of the halving in April and the positive momentum of US spot exchange-traded funds (ETFs), the coming months are set to be exciting for Bitcoin investors.