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According to Bitcoin on-chain results, speculators and long-term investors have become more secure in higher prices as their trading activity has slowed significantly.
For the first time in a Bitcoin (BTC) bull market, not only long-term buyers but also short-term speculators, who usually contribute to regular sell pressure at the end of a market period, have become highly optimistic of higher values as they hang on to their Bitcoin.
This exacerbates the already-existing supply shock. If demand remains high, the BTC price is likely to rise further.
Bitcoin selling activity is declining again
Any Bitcoin bull run has typically coincided with a growing number of short-term speculators entering the market in the hopes of making a fast profit, whilst long-term speculators begin to apply sell pressure towards the second half of the market period in order to realise their gains.
One of the best on-chain indicators to see this trend unfold in each cycle is called HODL waves. Hereby, the length at which each BTC address holds Bitcoin before they are sold into the market is clustered into term buckets that are then visualized in different color bands.
For eg, anyone who kept their Bitcoin for five months will fall into the 3m-6m bucket, which is shown by the light orange colour band. If that person wishes to sell, it will come out of that bucket and appear in the 24h-term bucket, which is the dark red colour band.
This means that the more red the colours are in the HODL waves map on a given day, the more Bitcoins are traded in the short term. This activity is almost at its lowest during a down market and at its best during a bull market, with short-term activity peaking near the top of a bull market.
Reflecting realized value in HODL waves is critical
Since the Bitcoin price fluctuates greatly during trading periods, and HODL waves only account for the absolute number of Bitcoins transferred, this map does not account for the overall value realised by a Bitcoin trader on a given day.
As it becomes increasingly lucrative for hodlers to take profit the higher the price rises, the HODL waves can be weighted by the realized price, which is the price at which each Bitcoin on average was last bought /sold.
This adjustment allows for visualizing the value-driven profit-taking on a daily basis through the value-adjusted colored, term buckets.
Bitcoin cycle tops tend to form around the short-term activity peak
Once HODL waves are weighted by the realized price, the Realized Cap HODL Waves are derived, a concept that was first introduced by on-chain analyst Typerbole. This adjustment reveals that the 1w-1m bucket tops coincide with every single bull market top so far.
This measure not only indicates that current trading activity is not yet at a traditional bull market high, but it also shows that, for the first time in Bitcoin’s bull market history, this pattern is slowing as the price continues to climb.
In a bull market, this is a very rare trend. Assuming that the market plateau has not yet been hit, this means that profit-seekers, whether short- or long-term focused, are beginning to hold on to their Bitcoin again, anticipating higher values and thereby contributing to the Bitcoin supply crunch on exchanges.
Bitcoin selling activity relative to the holding period is quite low
Glassnode CTO Rafael Schultze-Kraft takes a similar stance, looking at long-term hodlers through Coin Days Lost, a metric that shows the cumulative holding days “destroyed” by holders selling their Bitcoin.
According to this indicator’s 3-month moving average, the damage has retraced to a pace last seen in the summer of 2019 at periods when the price high has already been hit.
Ok, this is beautiful.
Experimenting with Coin Days Destroyed: Despite $BTC prices above $50k, 3-month CDD at low levels and recently declining.
Old hands extremely strong here, HODLers showing conviction and doing what they do best.
— Rafael Schultze-Kraft (@n3ocortex) April 9, 2021
If the price was close to a bull market peak, a much higher indicator value would be expected as long-term holders would be taking profit in material size, which is currently not the case.
Bitcoin spending behavior relative to the market cap is low
When taking this concept of Coin Days Destroyed further and looking at it with respect to average value destroyed in perspective to the market capitalization, one arrives at the so-called dormancy flow. This is a concept invented by analyst and trader David Puell.
The dormancy flow denotes the annual moving average of Bitcoin holders’ spending. That is dependent on the amount of value that is lost in comparison to the total amount of value in the industry.
This metric indicates that Bitcoin’s 365-day average purchasing behaviour in USD is very stable and well below previous bull market spending.
This is Bitcoin rocket fuel
Bitcoin trading activity, whether from speculators or long-term investors, is decreasing, and annual purchasing behaviour compared to market capitalisation is surprisingly low. Both of these on-chain data points point to the industry approaching an ever tighter supply squeeze. This is one of the most successful rocket fuels for driving the Bitcoin price higher.
However, this is not a guarantee since continuous demand is needed for the price to rise in this setting. As a result, high-net-worth individuals and institutions’ demand should be closely monitored, as they have lately become the primary force on the buyer side.