The Daily Dive - On-Chain Supply Dynamics

Rising Illiquid Supply And Exchange Outflows

To end yesterday’s issue we told readers we would provide an update on the on-chain Bitcoin supply dynamics. 

Despite our cautious macroeconomic outlook, bitcoin supply side dynamics look extremely strong. The amount of bitcoin as a percentage of circulating supply that hasn’t moved in one year or more is approximately 1% away from all-time high levels. 

Previous occasions of 1+ year dormant supply at similar levels predated bull markets. While macroeconomic conditions were markedly different during these periods, we find this to be extremely notable nonetheless, showing just how tight the supply side of the bitcoin market currently is. 

Next, we can see that illiquid supply continues to increase, displaying a similar trend. Even in this drawdown, illiquid supply percent of circulating supply has surpassed 2021’s high of 76.02% to 76.25%. Another way to view that dynamic is through the Supply Shock Ratio (illiquid supply over the sum of highly liquid and liquid supply) which continues to show the strength of illiquid supply growth relative to the rest of supply. 

Long-term holders continue moderate accumulation and/or short-term holder supply has aged into long-term holder supply. For context, the accumulation happening today is magnitudes lower than the level of accumulation we saw in June to September 2021. Regardless, it’s still a positive on-chain sign to see long-term holder supply neutral-to-rising in the current macro environment. 

Another way to look at this dynamic is the long-term holder net position change over the last 30 days where long-term holder supply has changed little since November 2021. Long-term holder supply increased by 52,648 coins over the last 30 days relative to the peak of approximately 630,000 coins in June 2021. That June 2021 period also follows one of the largest long-term holder distribution periods (selling into higher prices) in the last five years. 

The latest negative long-term holder net position change (most recent orange) was driven by seized Bitfinex coins moving on-chain and doesn’t reflect the ongoing market trend.

Even with the lack of whale accumulation in the market over the last few weeks, estimates for retail entities look to be accumulating supply at the highest rate in the last five years. We saw a similar level of retail accumulation after the March 2020 bottom. 

And as for exchange flows, March is shaping up to be one of the stronger outflow months over the last six months with nearly 40,000 BTC leaving exchanges on net (driven by recent Coinbase outflows). That is a good sign of some demand entering into the market, but it’s still below the stronger outflow months and price rallies we saw in 2020 and 2021. 

Compared to the last 30 days, the aggregate exchange outflow is 26,757 bitcoin. This has fallen from recent 30-day inflows at the end of February. 

In conclusion, these are all positive, long-term supply signs for bitcoin. In rising times of macro uncertainty, core long-term holders look to be increasing their supply and share of the network. More bitcoin is becoming illiquid and taken out of the float supply, even at lower prices. 

What still cautions our short-term outlook is the broader macro backdrop and how bitcoin price will be affected by potential credit and liquidity shocks rather than being priced on its fundamentals and adoption growth.