Data Suggests Bitcoin Holders Remain Steady – Bitcoin Magazine
This is an opinion piece by Shane Neagle, editor-in-chief of “The Tokenist”.
Macroeconomic headwinds continually contribute to a bearish narrative across all markets, including bitcoin.
As of October 2022, bitcoin is down more than 60% since the start of the year, but bitcoin’s trading volume remains fairly consistent since July 2022. Does this mean that the majority of holders are giving up on the prospect of bitcoin and opting to sell?
This is a complex topic to delve into, but there is one indicator that can help us paint a picture of what’s going on behind the noise: coin days destroyed (CDD).
What are mint days broken?
Over the course of an asset’s trading history, there is a significant difference if the purchase price was at the lower or higher end of the price spectrum. In the case of bitcoin, this spectrum is relatively short – only 13 years – but quite variable in terms of price (ranging from $0-$69,000). The original cryptocurrency has gone through four major bull and bear cycles, but when zoomed out, it has continuously trended upwards.
Image credit: Visualize Bitcoin
The implication of this long-term, upward trajectory is clear. Investors who were the earliest to buy bitcoin have the most to gain from selling, even in bear markets. Similarly, investors who took the opportunity to buy bitcoin early and at a lower cost had the opportunity to buy much more bitcoin for the same amount of fiat currency compared to prices later in bitcoin’s history.
In turn, bitcoin that was mined and purchased earlier has a different value than newer bitcoin that was released into the circulating supply. If these “aging” bitcoins are held in the same wallet for an extended period of time, such activity on the chain would indicate a strong belief held by the owner regarding bitcoin’s long-term value proposition. Such activity sends a strong signal to the Bitcoin network.
Additionally, a long-term holder of dormant bitcoin has an increased likelihood of experiencing multiple bear and bull market cycles, further reinforcing the importance of old bitcoin moving.
The broken coin days metric measures this importance. According to Glassnode, “broken coin days are a measure of economic activity that gives more weight to coins that have not been used for a long time.” CDD is calculated by multiplying the number of coins in a given transaction by the number of days since they were last moved from a wallet.
Bitcoin is often criticized for its high levels of volatility. Still, there is clear demand for bitcoin in long-term investments, even in traditional IRAs. CDD is a popular on-chain indicator used to measure the sentiment maintained by long-term holders – individuals who see value in the long-term prospects of bitcoin.
So, what does the current CDD level suggest?
Bitcoin’s CDD has been quite low
At 0.36, the 90-day moving average of bitcoin’s CDD in October 2022 hit one of its lowest values in history. This particular area was only previously visited in 2018, 2015 and late 2011. As the supply-adjusted bitcoin days destroyed (BDD) chart below shows, the highest BDD increases occurred during peaks in the bull run, which is to be expected as long-term owners lock into their profits.
Image credit: LookIntoBitcoin.com
In other words, long-term Bitcoiners – in the context of the asset’s historical sales activity – continue to hold bitcoin in large numbers. This may be one of the reasons why bitcoin’s price activity has been relatively stable. Such holders can act as a hedge against selling pressure.
If we look at bitcoin’s trading volume, do we see a similar pattern?
Image credit: bitcoinity.org
The chart above shows bitcoin’s trading volume from October 2020 to October 2022. What is noted here is fairly steady and consistent trading volume from roughly July 2021 to October 2022. We do not see a drop, similar to the activity from CDD.
The combination of data from these two indicators – a low CDD with smooth and consistent trading volume – further suggests that most of the bitcoin traded was by short-term holders. In fact, from 2010/2011 bitcoin, bought too well below the $100 range, has moved the least.
Overall, according to Glassnode data, just over 60% of circulating BTC hasn’t moved in over a year. This holding trend also contributed to bitcoin’s exceptionally low volatility. In comparison, similar price volatility in 2018 was followed by a 50% drop in a single month, from $6,408 in November to $3,193 in December.
Is it likely that we will see a new bottom even with long-term Bitcoiners holding the line?
Further Bitcoin Selling Pressure
Currently, bitcoin’s price is inversely related to its record high hash rate. This is not good news considering that miners have to service their debt by selling mined bitcoin, even at the lowest price point in this bear cycle.
Image credit: blockchain.com
Already one of the largest bitcoin mining companies, Core Scientific (CORZ) – with a share of the hash rate around 5% of the network’s total – is exploring bankruptcy. Meanwhile, CORZ stock has collapsed 98.32% so far this year.
Argo Blockchain (ARBK) shares the same fate, having fallen by 91.56% and is unable to sell enough assets to cover its costs. According to an operational update from Argo in October 2022:
“Should Argo not be successful in completing additional financing, Argo will become cash flow negative in the short term and have to curtail or cease operations.”
While these mining companies will likely end up lowering the Bitcoin hash difficulty, this has the potential to cause another contagion in a game of the fittest. This time, vulnerability and market selling could come from remaining centralized platforms that lend dollars to bitcoin mining companies. Returning to the ongoing macroeconomic headwinds, how the market interprets the Federal Reserve’s next move could end up boosting the price of bitcoin just enough to keep miners afloat.
Because the Fed raises the cost of capital and borrowing, making the dollar stronger in the process, this usually causes investors to abandon risky assets, such as bitcoin. When investors predict a recession, the dollar reigns even stronger, as investors dive into cash as a safe haven.
Similarly, the Fed’s signaling towards accelerated tightening – a pivot from the expected rate hike – could provide relief to the market.
That said, the so-called “Fed pivot” should not be understood as a return to lower interest rates, but as a slowdown to potentially hike only 50 basis points in December (if incoming inflation data favors it). Nevertheless, in the current dire market environment, it may be sufficient for a short-term rally, or at least avoid a new bitcoin bottom.
Despite the many factors pushing investors away from asset risk – the Fed battling 40-year high inflation, a looming energy crisis in Europe, ongoing global supply chain issues and even Bitcoin’s mining difficulties – CDD and bitcoin trading volume data provide us with a interesting observation. Long-term owners seem more confident than ever in the long-term value proposition that bitcoin provides. Such holders are currently selling bitcoin at one of the lowest prices we have seen in the history of the Bitcoin network.
This is a guest post by Shane Neagle. Opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.
