The Daily Dive - HODLer Sentiment Unphased

On-Chain HODLer Sentiment

As we’ve noted in previous Daily Dives and analyses, we’re far more concerned with the current macro environment and the scenario of a violent credit unwinding in the market relative to the state of on-chain indicators and health of the derivatives market.

We’re anticipating more downside before more upside in the short to medium term. Although there have been signs of bitcoin responding positively to the rising uncertainty and geopolitical conflict (as seen by Russian and Ukrainian exchange volume and a premium on spot buying) — bitcoin as a safe haven asset — it has proven to be an asset to thrive on risk and liquidity. 

That said, the latest state of on-chain supply dynamics can provide us with HODLer sentiment and behavior which are still some of bitcoin’s strongest fundamentals. TLDR: 

• HODLers are largely unphased as the percent of circulating supply that has not moved for more than three months is near all-time highs. 

• We are likely to see forced sell-offs and capitulation in the event of debt/credit unwinding. 

• The strength of supply dynamics won’t take much of a hit based on previous drawdowns. 

As of yesterday, 83.81% of supply has not moved in three months or more. This is just shy of the all-time high seen back in October 2021 of 85.41% and significantly higher than the 76.93% median seen throughout Bitcoin’s history. We use three months as a threshold as it’s a similar period of time for Glassnode’s threshold for long-term holders. 

Broken down by age, the largest contributing cohorts to the current 83.81% are from coins that haven’t moved in 1-2 years (at 17.54%) and coins that haven’t moved in 2-3 years (at 15.33%). These coins would represent those who acquired them sometime between March 2019 and March 2021. Coins that haven’t moved in more than 10 years make up 12.63% but we consider that supply unlikely to return to the market as it includes Satoshi’s coins and a portion of lost coins. 

We typically see HODLed supply significantly move for two reasons: profit taking or distribution at new price highs and capitulation during new price lows. The largest moves happen during new price highs with the selling of older coins to new buyers. Supply also moves at capitulation events but relatively speaking not that much compared to distribution periods. 

During the last two significant lows during March 2020 and July 2021, the circulating supply remained above 80%. This is the strongest sign of long-term bitcoin holder sentiment and investor conviction in the future potential of the network and the asset. Even during bitcoin’s worst drawdowns, most of the supply doesn’t move. 

We can also see the strength of long-term investor sentiment through long-term holders and illiquid supply. Although the long-term holder data below is skewed because of the recent seizure and movement of Bitfinex hacked coins worth $3.6 billion, we’re seeing a trend of moderate accumulation or short-term coins aging into long-term holder supply. The moving of the Bitfinex coins artificially drops long-term holders showing a decrease in the 30-day net position change during February. As we’ve moved past the 30-day window, we see long-term holder supply tick back up. 

As for the illiquid supply percentage of circulating supply, it’s near the 2021 high of 76.06%. What’s unique this time around is that the bitcoin price is nearly 40% down from that high. Without a much higher price to incentivize illiquid-supply sellers and a distribution period, illiquid supply is likely to continue growing its share of circulating supply. 

The popular supply shock metric, illiquid supply divided by the sum of liquid and highly liquid supply, follows the illiquid supply percentage trend and is nearing 2021 highs. 

It’s important to view the on-chain supply dynamics as bitcoin’s long-term fundamental strength rather than short-term strength. We expect market volatility to persist across all asset classes in the short term, bitcoin included. We also expect more downside to come in a macro credit unwinding scenario.

Yet, as global demand continues, these are the fundamental supply strengths of the network that make bitcoin the long-term attractive investment.