On-chain analytics firm Glassnode explained that Bitcoin tends to reach a potential peak when long-term holders show this pattern.
Long-term Bitcoin holders have been increasing distribution
In a new report, Glassnode discussed the influence that long-term BTC holders have on the cryptocurrency’s supply dynamics. “Long-term holders” (LTHs) here refer to Bitcoin investors who have held their coins for more than 155 days.
LTHs comprise one of the two main divisions of the BTC user base based on holding time, with the other group being known as “short-term holders” (STHs).
Historically, LTHs have proven to be the market’s persistent hands. They don’t sell their coins quickly regardless of what is happening in the broader sector. STHs, on the other hand, often react to FUD and FOMO events.
As such, it is not uncommon to see STHs participating in the sale. However, LTHs showing sustained distribution could be something worth noting, as sales from these HODLers, who typically stay quiet, could have implications for the market.
There are many different ways to track the behavior of LTHs, but in the context of the current discussion, Glassnode used the “LTH Market Inflation Rate” metric.
As the report explains:
It shows the annualized rate of accumulation or distribution of Bitcoin by LTHs relative to the daily issuance of miners. This rate helps identify periods of net accumulation, where LTHs are effectively removing Bitcoin from the market, and periods of net distribution, where LTHs increase sell-side pressure.
Now, here is a chart showing the trend of the BTC LTH market inflation rate over the past few years:
The value of the metric seems to have been on the rise in recent days | Source: Glassnode
In the chart, the analysis company also attached data on the asset’s Inflation Rate, which is basically the value that miners are introducing into the circulating supply when solving blocks and receiving rewards for them.
When the LTH market inflation rate is equal to 0%, these HODLers are accumulating amounts exactly equal to what the miners are issuing.
This implies that the indicator below the 0% mark suggests that LTHs are withdrawing coins from supply, while being above is a sign that they are giving away or simply not buying enough to absorb what miners are producing.
The chart shows that, historically, the cryptocurrency price has tended to reach a state of equilibrium and potentially even a top when LTH distribution has peaked.
The LTH market inflation rate has been increasing recently, but has not yet reached significant levels. As for what this could mean for the market, Glassnode says:
Currently, the LTH market inflation rate trend indicates that we are in an early phase of a distribution cycle, with about 30% completed. This suggests significant future activity in the current cycle until we reach a point of market balance from a supply and demand perspective and potential price maximums.
BTC Price
Bitcoin retraced most of its recovery from recent days as its price fell to $63,800.
Looks like the price of the asset has witnessed a drawdown again | Source: BTCUSD on TradingView
Featured image of Kanchanara on Unsplash.com, Glassnode.com, chart from TradingView.com
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