During the earlier years miners also may have been selling their newly mined bitcoin to cover overhead costs - especially after the introduction of GPU mining and later ASIC mining.įigure 8 also shows that after each Bitcoin halving (vertical black striped lines), the rate of contraction in the illiquid supply slows - even turning into a positive growth rate immediately after the last two halvings. When bitcoin started getting a market price and saw some early adoption as a neo-money, a larger portion of the supply started to become liquid, as these coins could now actually be spent. After Bitcoin’s genesis almost all of the bitcoin supply was considered illiquid, as network participants were CPU mining on laptops and desktops and mostly just toying around with the new software. Next we’ll zoom in on the illiquid supply ratio percentage, which is visualized in figure 8. Long-term bitcoin holders are therefore usually seen as “smart money.” Being able to follow their economic behavior via the blockchain may hold valuable information about the state of the bitcoin market.įigure 7: The bitcoin price (black), circulating supply (blue), illiquid (green) and liquid supply (red) percentages ( source) The red color overlay shows the opposite: LTH Supply Ratio usually decreases when price rises, illustrating that long-term holders tend to sell against market strength and accumulate during market weakness.
The green color overlays represent periods in which the LTH Supply Ratio rises, which usually occurs during market downturns where price (black line) decreases or bottoms. This Long-Term Holder Supply Ratio is displayed in the green line in Figure 2. An easier way to view the historical data is to divide the LTH supply by the circulating supply, which then represents the portion of the circulating supply that is estimated to be in the hands of LTH. It is therefore interesting to assess to what extent supply is in the hands of entities that are or are not selling.įigure 1: Bitcoin price (black), circulating supply (blue), short-term holder supply (red) and long-term holder supply (green) ( source )Īs is evident, the STH and LTH supply fluctuate over time. During a halving the new supply issuance via the block rewards that miners receive when creating a new block is halved, triggering a large price increase in the subsequent year that is known as Bitcoin’s four-year cycle.īitcoin’s halvings are programmed into the software, but a supply shock can also occur when previously illiquid supply becomes liquid or vice versa. In Bitcoin, the halving events that occur every 210,000 blocks (roughly every four years) are the most famous supply shocks. Squeezing SupplyĪ supply shock, sometimes also called a supply squeeze, is an event where the supply of a product or commodity that is actively being traded on the market changes and causes a price move. Times have been tough, but there are currently all kinds of squeezing going on that ensure that much of the available bitcoin supply will end up in strong hands in preparation for the next micro-, meso- or macro-cycle. That is what this third Cycling On-Chain is all about. When life gives you melons, make lemonade – Elbert Hubbard, 1915
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