(Bloomberg) — With Bitcoin still in good shape from record highs, proponents are finding a glimmer of hope for the world’s largest cryptocurrency by analyzing the makeup of its investors.
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Even with the gains so far this week, the coin is still down more than 30% from its November record near $69,000. But the on-chain data suggests that more investors are “gaming” or holding their bitcoin — and for longer periods of time than before.
According to Noel Acheson, Head of Market Insights at Genesis Global Trading, about 75% of bitcoins in circulation are held at so-called illiquid addresses, meaning digital wallets spending less than 25% of their incoming coins. Meanwhile, about 57% of bitcoins in circulation have not moved from anonymous addresses for more than a year, in a sign of their long-term owners.
Hodl has been the mantra of crypto-believers during market trajectories since the early days of the digital asset world, when a frantic bitcoin trader mistyped the word “Hold” in an online forum in 2013. Anyone willing to put up with volatility is believed to be an embrace.
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For Acheson, the increasing amount of illiquid supply explains why daily bitcoin price movements often mimic those of other risky assets such as stocks. Whereas long-term bitcoin holders simply accumulate the token, short-term traders view and trade the currency as a risky asset, and their actions drive daily price movements that often seem to react to macro trends such as inflation data.
In fact, since July 2021, there has been a steady transfer of coins from short-term holders to long-term holders, a trend that has led to an increase in the illiquid supply of bitcoin, according to Brett Munster of Blockforce Capital, who analyzed Glassnode data. With the price drop last month, the shift from liquid to illiquid portfolios accelerated.
“This provides a strong base of shareholders who are unlikely to sell,” Munster wrote in a note this week. It may be that, given the rule of “loyalty believers in bitcoin,” the recent liquidation of leverage hasn’t caused a further drop in prices and kept bitcoin’s price relatively tight in a limited range in the past several weeks, he said.
Meanwhile, a metric referred to as Bitcoin’s “sleep flow” is flashing a historical bullish signal. The flow measures the number of days that have passed since the coin was last sold – called Coin Days Destroyed – and puts it in the context of the token’s total market capitalization. The gauge has now fallen below the key level that indicated market lows in the past, according to Atchison.
“This sounds bullish, but cryptocurrency prices these days are driven by different concerns than they were in March 2020, January 2019, etc., so they should not be taken at face value. However, such signals are worth following.”
Meanwhile, Bloomberg data shows that the currency’s 90-day volatility is trending lower. For Mike McGlone of Bloomberg Intelligence, that makes sense. “Bitcoin’s volatility usually increases when prices seek new highs,” he said. It’s “at about the same price since February, lower volatility indicative of bull market consolidation.”
Bitcoin crossed the $44,000 mark for the first time in over a week on Wednesday. The coin fell about 2.5% to $42,600 at noon in New York trading on Thursday.
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