The Bitcoin market had a shockingly dramatic weekend, in contrast to the typical quiet price action of previous weekends. On Saturday, January 31, the world’s leading cryptocurrency seemingly led other crypto assets south of the charts, with its price dropping from $84,350 to $75,000 overnight.
As this unfolded, an inversely correlated shift also occurred among the charts. A recent on-chain assessment has indicated that the behavior of long-term Bitcoin holders is changing, in contrast to what short-term holders are doing.
Long-term holders accumulate as short-term supply decreases
Pseudonymous on-chain analyst Darkfost recently took advantage of CryptoQuant, via a Quicktake postnoting that Bitcoin’s long-term holders are accumulating more BTC. The relevant indicator here is the LTH supply change (Coinbase fix).
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For context, this metric tracks the net change in the amount of Bitcoin held by long-term holders (typically coins that remain immobile for about 155 days). According to the analyst, approximately 186,000 (monthly average) have been added to the supply of long-term holders.
As more and more coins age over the past 155 days, Darkfost suggested that the supply of near-term holders is in turn witnessing a steady contraction. In particular, the analyst pointed out that this type of transition (between long-term and short-term investors) last occurred in April, when the Bitcoin price recovered.
As is intuitively clear, rising LTH supply is typically interpreted as growing conviction among Bitcoin’s long-term investors. By extension, this means that long-term owners distribute less of their possessions and put more away.
In theory, this behavior is bullish news for the cryptocurrency. This is because, as LTHs absorb supply, the amount of Bitcoin available for sale decreases. Historically, it is also a bullish signal for the BTC price, as it often appeared during the early stages of accumulation periods or late in the correction phases.
The broader market implications in the current context may not be so favorable. Darkfost emphasized that there is very weak demand available to absorb the falling BTC price.
At the same time, the Bitcoin market appears to be entering a bearish phase; Therefore, it is not far-fetched to see major capitulation events in the short term. If this happens, the Bitcoin price will likely plummet as weaker investors may sell their holdings out of fear or as victims of liquidation events.
For bullish prospects to be truly relevant, there must be a clear recovery in demand, alongside continued long-term shareholder accumulation.
Bitcoin price at a glance
At the time of writing, the Bitcoin price stands at around $78,060, reflecting a loss of 6.9% in the past day.
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Featured image from iStock, chart from TradingView