While the economic, health and geopolitical context is shaking traditional finance, bitcoin (BTC) is resisting selling pressure as best it can. Hovering around $40,000, the queen of cryptocurrencies seems to be transitioning into a still uncertain trend. At this stage, how is the supply in circulation divided between the various instances and entities of the market? On-chain analysis of the situation.

Bitcoin resists on its support

Bitcoin (BTC) price continues to swing around the $40,000 support , giving short-term speculators a hard time.

lying below all of its resistance lines (21EMA in red, 50MA in blue and 200MA in purple), the price of BTC augurs for some a sharp fall, while others call for a double consolidation. a heavy accumulation.

Given the geopolitical (kinetic war in Ukraine), macroeconomic (Fed rate hikes, statements by the IMF director, escalating consumer prices) and health (reconfinement of Shanghai and disruption of supply chains) context, the response from the traditional markets was swift and large capital losses are hitting companies such as Netflix, Apple, AramCo and even Berkshire Hathaway.

Bitcoin, which has been positively correlated to technology and energy stocks since March 2020, nevertheless seems to be resisting this context of global uncertainty as well as possible, proving today to be less volatile and bearish than many traditional commodities .

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Figure 1: Daily price of bitcoin (BTC)

This week, a special edition leads us to observe the distribution of the supply of BTC in circulation. The goal today is to carry out a kind of inventory of the current distribution of the market in order to study its evolution over the coming months.

To do so, we will evoke a wide range of metrics relating to the nature and distribution of the supply of BTC in circulation in order to assess its liquidity, its distribution and its dynamics before concluding this analysis with a touch of optimism. moderate.

A market with new structures

Let’s start this study by highlighting a key fact for the BTC market. Indeed, in December 2021, the 18,900,000th was mined, leaving the last tenth of the supply around 120 years to be mined. The year 2022 therefore marks a pivotal point in terms of supply and demand dynamics .

With today less than 10% of the monetary mass remaining to be mined , the competition between nations, companies and individuals will be all the more fierce as the economic and social utility of bitcoin (the network) and bitcoin (the currency) will be confirmed or invalidated by the challenges and crises to come.

BTC Supply in Circulation

Figure 2: Circulating supply

At the rate of an average daily monetary issue of 1,018.75 BTC, until the next halving, estimated around 2024, at block 840,000, it is 0.0048% of the total supply that is extracted every day .

However, it would be very ambitious to declare that the entire offer currently in circulation is available. Indeed, many BTCs today are lost, forgotten or inaccessible, reducing the supply actually available and decreasing the total selling pressure of the market.

“Lost coins only add a little more value to other people’s bitcoins. See it as a gift to the community. – Satoshi Nakamoto

Glassnode thus estimates, by deducting from the supply in circulation all the BTCs that have not been active for at least 7 years, that the supply actually available (called the Adjusted Supply) would be limited to approximately 15.5 million BTCs , representing 73.88% of total supply.

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Figure 3: Adjusted Supply

Thus, 16.7% of all BTC created (about 3.5 million) would already be frozen forever. And this while the supply remaining to be mined, representing less than 2 million BTC or 9.45% of the total supply, is today fiercely coveted by a multitude of entities.

Next, let’s look at the liquidity of the circulating supply. The study of bitcoin liquidity is essential to understand its market dynamics. Indeed, if many bitcoins are withheld and saved by participants, a phenomenon called liquidity shock takes place, having the effect of weakening the selling pressure.

Put another way: A sustained rise in illiquid bitcoins is an indication of strong investor HODLing sentiment and is a potential bullish signal. .

The BTC offer is then divided into three categories:

  • illiquid BTCs , with little or no spending history, mostly held outside exchanges over the long term with high conviction;
  • liquid BTCs , moved regularly on the exchanges, being the subject of speculation by short-term investors;
  • highly liquid, constantly moving BTC , often associated with coins used by decentralized finance (DeFi), under the WBTC umbrella.

The graph below shows illiquid supply (purple) and the sum of liquid and very liquid supply (blue) as a function of time.

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Figure 4: Liquidity of circulating supply

His observation shows that almost 15 million (76.75%) of the circulating supply is currently illiquid , a score that has been rising almost steadily over bitcoin’s history excluding the 2018 – 2019 bear market and the May 2021 surrender.

On the other side, it seems important to mention the gradual decline of the liquid and very liquid supply, which today represents less than a quarter of the circulating supply (4.4 million BTC).

Identified in our previous analyses, this propensity of the market to withdraw BTC from the market with the objective of long-term retention testifies to a change in the paradigm of investors, modifying their spending behavior in favor of savings. .

An increasingly coveted offer

Let’s qualify this breakdown of the BTC supply by studying the assets held by several types of entities. Following the path historically taken by bitcoins, from their issuance to their distribution, we will study the holdings of miners, exchanges, long-term investors (LTH) and then short-term investors (STH).

There are only two ways to acquire bitcoins, earn them or buy them . The cohort of miners, by virtue of their essential role as block forgers, belongs to those entities that are paid in BTC.

Both compulsive sellers, because they have to cover their CAPEX and OPEX costs, and seasoned accumulators, miners today concentrate 1.8 million BTC, or 9.58% of the supply in circulation .

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Figure 6: Miners’ reserves

In view of the historical evolution of the reserves held by this cohort, it seems at first sight that their holdings tend to stabilize, since less and less BTC are necessary for their expenditure as the price increases.

Once spent, miners’ BTCs are most of the time available on exchanges , mostly centralized platforms offering many types of financial services, including the purchase of bitcoins, at market price (spot).

These exchanges, in full expansion of their reserves between 2012 and 2020, have both multiplied their number, but also their stock of BTC before starting a flagrant trend reversal in March 2020.

With the exception of Binance, Kraken, FTX and Bittrex, the holdings of these platforms then fall structurally without faltering. The May 2021 capitulation will bring some liquidity back to these markets, but it will only be short-lived.

As of the November 2021 ATH, reserves across all exchanges begin to melt and plunge in concert under consecutive waves of drawdowns. Gathering nearly 2.4 million BTC today, or 12.66% of the supply in circulation , it is a safe bet that the exchanges will experience significant waves of withdrawals in the future.

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Figure 7: Exchange reserves

Among the cohorts of investors participating in this exodus of BTC from exchanges to cold storage tools and individual wallets, short-term (STH) and long-term (LTH) investors are two particularly active groups.

STHs, entities with a short time horizon, sensitive to price volatility and holding their holdings for less than 155 days, are statistically more likely to give in to market selling pressure . They are very often top buyers, making them the losers of bull market ends.

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Figure 8: Supply held by STHs

In doing so, they participate little in the bitcoin retention phenomenon and mostly handle liquid BTCs. Accumulating to date more than 3 million BTC (16.16% of the circulating supply) , STHs continue the accumulation phase that began at the end of 2021 despite an uncertain price action.

One generally finds among long-term investors (LTH) a behavior opposite to that of STHs. Seasoned investors, imbued with the philosophy of HODLing and buyers of last resort, these entities demonstrate a patient nature, an insensitivity to price and a strong conviction towards the economic and social virtues provided by Bitcoin.

Distributing their holdings during big ups and accumulating in the depths of bear markets, these entities hold their BTC for more than 155 days and often beyond several years before they want to realize their profits.

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Figure 9: Supply held by LTHs

Active participants in making BTC increasingly illiquid, they currently retain more than 70% of the circulating supply (13.5 million BTC) and also seem to be following a reaccumulation approach.

Note that it is extremely rare for these two cohorts (LTH and STH) to show signs of accumulation in a synchronized manner . This is a very constructive signal that demand is currently exceeding supply in the spot markets.

Encouraging signals … but nothing immediate

Let’s briefly conclude this analysis by analyzing two meaningful metrics: SLRV and aSOPR.

The SRLV, an indicator developed by Ark Invest, measures the momentum of demand in the short and long term in order to detect entries into bear markets (red) following the peaks of bull markets (green).

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Figure 10: SLRV

An interesting point here is the fact that this indicator has not signaled a bear market entry since 2019 , signaling not that we are in a bull market (this definition being relatively fuzzy), but rather that we are experiencing a bear market. an unprecedented market structure.

Indeed, the increased interest in STHs during the years 2020 and 2021, coupled with the aggressive accumulation of LTHs seems to create a sufficiently substantial demand for this metric to record large curved reversal phases (blue).

Currently in a bullish reversal phase, the SLRV indicates that a potential upside is ahead, given the combined demand of these two cohorts .

As for aSOPR, it represents the profitability ratio of expenses. Proxy of market profitability, it indicates negative (red), moderate (blue), strong (green) and maximum (yellow) profitability phases.

A diagram then jumps to the eye and reveals an underlying dynamic of the market: the influence of the profitability of the market through expenses. In fact, the behavior that attracts our attention here is the formation of a base as a transition event between the take-profit and take-loss phases .

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Figure 11: aSOPR

Having recently taken two major losses, the market is once again forming a base by trying to build on the neutrality threshold (aSOPR = 1).

Thus, the market has been in a transition phase since February, the outcome of which is not certain , although many on-chain signals favor the bullish hypothesis.

Summary of this on-chain analysis

Finally, the current distribution of the supply in circulation is, to say the least, unprecedented. As more and more BTC leaves exchanges to LTH wallets , illiquid supply grows unabated and increases the likelihood of a bullish liquidity shock.

With less than 10% of bitcoins remaining to be mined, fierce competition for the acquisition of the last bitcoins is gradually taking place , drastically increasing buying pressure and comforting long-term investors on the uptrend to come. .

Sources – Figure 1: Coinigy ; Figures 2 to 11: Glassnode

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