- As BTC became scarcer, investors showed more willingness to HODL.
- Quarterly issuance would drop to approximately 40,000 after the halving.
Bitcoin [BTC] holders eagerly awaited the upcoming one halve in 2024, with the hope that the pivotal event would trigger the bull run and drive the price of the largest digital asset to even higher levels than before.
Furthermore, if we want to follow history, these events actually preceded periods of high returns. So the stakes were high for investors who witnessed a significant dent in their portfolios during the bear market.
How investors are preparing for the halving
Given the significance of the event, a clear shift in investor behavior and supply began to emerge. Users became reluctant to let go of their inventory and adopted the HODLing strategy.
The result: a sharp decline in the supply of BTC available for traders to buy and sell. According to a recent report by on-chain analytics firm Glassnode, actively traded supply represented only 5%-10% of the total circulating supply.
Source: Glassnode
Furthermore, the supply of coins ending up in liquid wallets, that is, those who received coins and had a good track record of spending them, had been declining for years.
Instead, most of the coins pulled from exchanges found their way into illiquid wallets, with little to no track record of investing.
Source: Glassnode
An interesting aspect of the rise in illiquid supply has been the growth of institutional custody products such as the Grayscale Bitcoin Trust (GBTC).
Consider how the March 2020 inflection point mentioned above coincided with a substantial increase in demand for GBTC.
Source: Glassnode
The striking divergence
In contrast to the decline in the actively traded supply of BTC, the supply of long-term holders (LTH) showed a substantial increase over the past two years. A striking difference was observed between the two, as shown below.
Source: Glassnode
The difference implied that more and more coins have moved from exchange custody to cold wallets and self-custody of long-term holders.
But how does the jump in illiquid supply fit into the upcoming halving and post-halving scenarios?
Illiquid supply is growing faster than issuance
According to the report, approximately 81,000 BTC coins were mined every quarter. The number would decrease to about 40,000 after the halving.
In contrast, illiquid supply increased at a rate of 180,000 BTCs every quarter. This was almost 2.2 times more than the issue interest. In fact, all previous halvings witnessed continued accumulation leading up to the event.
Source: Glassnode
Stored supply exceeding new issuance in a pre-halving environment reflected investor sentiment around Bitcoin. As supply becomes scarcer in the future, such a strategy could become more common than at the time of publication.
Furthermore, LTHs accumulate coins during a consolidating market and wait for a bull run to distribute their holdings. This is a historically proven story that played out during the 2021 bull run.
Combining the above trends, one can see how halving events are one of the main drivers of BTC’s bull cycle.
The market sees correction
Meanwhile, the market experienced a correction in the past 24 hours as BTC fell below $37,000. According to Coinglass, total liquidations on the network amounted to $174 million, 70% of which were long-term liquidations.
Source: Coinglass
The Open interest (OI) in Bitcoin futures was marginally affected by the price drop, falling 1.45% over the past 24 hours.
How many Worth 1,10,100 BTC today?
However, overall the market was still optimistic about the near-term prospects. Riding the ETF wave, both Bitcoin and Ethereum [ETH] appeared well prepared to attract the next wave of liquidity in the coming months.
Shivam Thakral, CEO of the Indian cryptocurrency exchange, opined:
“Open interest in BTC options surpassed $16 billion as buyers dominate the current market. We may be witnessing the first signs of the next bull run, with market indicators pointing to a healthy comeback.”