- An all-time high of 12.7 million bitcoins have not moved in over a year
- That 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 as price falls, which may seem counter-intuitive
- The real story is a little more nuanced, as falling trade volumes in bear markets provide a lurking variable which affects the data
One of the intriguing things about blockchain is the public availability of all sorts of stats about the network.
A lot is made of the fixed supply cap of Bitcoin, with the final supply of 21 million bitcoins slated to be hit by 2140. Bulls use this as a case in point as to why the asset is programmed to expand in price, as its scarcity will inevitably squeeze the asset upwards.
By looking on-chain here at https://coinjournal.net/, we noticed a quirk in this data.
Long-term holders continue to grow
Despite the bloodbath that was cryptocurrency in the year 2022, long-term holders have continued to accumulate. Out of the 19.27 million bitcoins currently in circulation, 12.77 million bitcoins have not moved in over a year – an all-time high.
It’s a pretty significant number. In the following chart, I have plotted these bitcoins against two other categories: firstly, bitcoins that have moved in the last month (traders), and secondly, bitcoins that have not moved in over a month but have moved within the last year (medium-term holders).
Currently, we have 66% of bitcoins unmoved in over a year – again, an all-time high. The previous high was in September 2020 when the mark hit 63%. Prior to that, the previous high was April 2016 at 60%.
A further 27% of bitcoins have not moved in the last month, while the remaining 7% can be seen as traded bitcoins, moving around the blockchain in the last month.
Why are long term holders growing?
The obvious question is, why? Why are we seeing long-term holders growing so substantially when the market has been getting pummelled?
Well, I decided to chart the percentage of long term holders against the bitcoin price. And the result is quite interesting – there definitely seems to be at least a moderate inverse relationship between price and long-term holders. That is, when price falls, long-term holders rise. Hmm.
But in truth, this makes sense. As the price falls, volumes and interest in the market tend to dry up. With that, comes less trading, and by definition less holders under the one-month threshold.
While the narrative of long-term holders soaking up increasing amounts of the Bitcoin supply is often painted in a bullish light, I’m not sure that tells the whole story when considering this historical pattern.
Sure, it is a positive thing that the number of bitcoins that have not moved in more than one year are climbing, as it does show that these long-term holders have tended not to capitulate during the drawdowns.
But a healthy trading market and high liquidity is associated with a bull market, which is part of the reason we are seeing an inverse relationship here. Look no further than trading volume in 2022, which fell 46% on centralised exchanges compared to the previous year – that’s trillions of dollars of activity no longer present.
“Trading volumes have cratered across the crypto space. This has pulled down activity and it’s not surprising that the portion of bitcoins traded recently is therefore falling. The analysis of long-term holders is a more nuanced issue than the crude assumption that ‘more bitcoins in long-term wallets is bullish and therefore price will go up’. That is simply not what we have seen historically” said Max Coupland, Director of CoinJournal.
I’ll continue to monitor all on-chain activity, as the market is certainly showing more life in these early stages of 2023, with softer inflation data giving impetus to the market that we may pivot off high interest rates sooner than previously expected. It will be interesting to keep tabs on the dynamics on-chain, therefore.
But next time somebody declares it obviously bullish that there are less bitcoins being flung around the markets, perhaps remember that the situation is a little more complex than that.
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