The Contraction of Bitcoin Supply Despite Market Progress, According to Glassnode Data
A recent study conducted by Glassnode, a renowned authority on on-chain activities, reveals a surprising trend – even as the value of bitcoin has risen significantly throughout this year, there is a notable increase in coins’ dormancy. This indicates that the scarcity of the Bitcoin supply has become even more pronounced, with inactive coins reaching both multi-year and unprecedented highs.
The Unusual Interplay of Surging Bitcoin Price and Shrinking Supply
The past year has seen Bitcoin rise by an impressive 71%, and an even more substantial 114% increase from the start of the year until now. Despite these significant price surges, the Glassnode study reveals an unexpected trend – the supply of bitcoin is still limited. It is dominated mainly by holders who have so far shown firm resolve in holding onto their coins.
Further analysis of the on-chain report by Glassnode portrays a stark picture. The portion of bitcoin (BTC) that has stayed untouched for over a year stands at a whopping 68.8%. Even more startlingly, the non-liquid supply index has climbed to an all-time high of 15.4 million BTC. The team at Glassnode points out this trend indicates that long-term investors are holding nearly record levels of bitcoin, while the supply by short-term buyers has sunk to never-before-seen lows.
Not only does this growing disparity imply a solidification of supply – current investors are increasingly reluctant to part with their holdings. Since mid-2022, a notable widening of the gap between long-term and recent investors’ supplies suggests an increasing contrast between dormant and circulating supplies.
Declining Activity-to-Vaulting Ratio – What it Means for the Market
Another noteworthy aspect brought to light by the Glassnode study is the consistent decline of the newly introduced metric named the Activity-to-Vaulting Ratio since mid-2021. This substantial dip after June 2022 could mean a dwindling of the market’s “exuberance” for the 2021-22 cycle, according to Glassnode.
This change indicates a conspicuous trend among spending patterns – more and more investors are focusing on accumulation and retaining their bitcoins instead of active trading. Signalling some profit-making in the short term, the Sell-Side Risk Ratio for short-term holders has skyrocketed, while for long-term holders, this ratio remains remarkably low in historical terms.
Another interesting observation made by Glassnode is the marked increase in wallet sizes across all types of investors, indicative of a surge in investor confidence. Smaller investors, dubbed “Shrimps” and “Crabs”, who hold less than one and 1-10 BTC respectively, have from May 2022, taken in 92% of the bitcoin mined. Larger investors or “Fish” are those holding between 10-100 BTC.
The analysts at Glassnode, wrapping up their findings, state, “The bitcoin supply is historically tight, with many supply metrics describing ‘coin inactivity’ reaching multi-year, and even record highs. This suggests that the [bitcoin] supply is extremely tightly held, which is an impressive feat considering the robust price performance this year.”
We encourage comments about Glassnode’s findings on bitcoin’s tightening supply. Feel free to share your thoughts and opinions below.
Frequently asked Questions
Q: What does it mean when the Bitcoin supply dips to an all-time low?
A: When the Bitcoin supply dips to an all-time low, it indicates that there are fewer Bitcoins available to be bought or sold on the market. This scarcity can drive up the price of Bitcoin as demand increases.
Q: What factors contribute to the Bitcoin supply decreasing?
A: The Bitcoin supply can decrease due to various factors such as increased adoption and usage, hodling (long-term holding) by investors, loss of private keys, or even deliberate destruction of Bitcoins.
Q: How does the decrease in Bitcoin supply affect the market?
A: The decrease in Bitcoin supply often leads to a surge in the market. As the supply decreases and demand remains constant or increases, the scarcity of Bitcoin drives up its price. This surge in the market can attract more investors and traders.
Q: What is Glassnode data and how does it reveal the Bitcoin supply and market trends?
A: Glassnode is a blockchain data analytics provider that collects and analyzes data from the Bitcoin network. It provides insights into various metrics, including the Bitcoin supply and market trends, through its comprehensive data analysis tools.
Q: Does the decrease in Bitcoin supply indicate a bullish market?
A: The decrease in Bitcoin supply is often seen as a bullish signal in the market. However, it is not the sole indicator of market trends. Other factors, such as investor sentiment, macroeconomic conditions, and regulatory developments, also play a significant role in determining market movements.
Q: Can the decrease in Bitcoin supply lead to price manipulation?
A: While the decrease in Bitcoin supply can create price volatility, it does not necessarily indicate price manipulation. Bitcoin’s decentralized nature and transparent blockchain make it difficult for any single entity to control the market. Manipulation attempts can be mitigated by the presence of a diverse and active community.
Q: What are the potential implications of Bitcoin supply reaching an all-time low?
A: When the Bitcoin supply reaches an all-time low, it can have several implications. It can enhance Bitcoin’s store of value proposition by increasing scarcity. Moreover, it can attract more institutional investors who view Bitcoin as a hedge against traditional financial systems. Additionally, it may also lead to increased interest from regulators and governments in understanding and regulating cryptocurrencies.