Data Indicates That Bitcoin Owners Remain Consistent

All markets, including bitcoin, are currently experiencing a pessimistic narrative due to macroeconomic headwinds.

Although bitcoin has lost more than 60% of its value since the year began as of October 2022, its trading volume has remained largely stable since July 2022. Does that imply that the majority of holders are choosing to sell rather than continue to hold bitcoin?

Coin days destroyed are one indicator that can help us understand what is happening behind the noise in this complicated subject (CDD).

If the purchase price was at the low or high end of the price range, it makes a big effect over the duration of an asset’s trading history. In the case of bitcoin, the spectrum is only 13 years long, yet it has a wide range of prices (from $0 to $69,000). The first cryptocurrency has gone through four significant bull and bear cycles, but when looking at the big picture, it has always trended upward.

This long-term increasing tendency has obvious implications. Even in bear markets, those who purchased bitcoin first stand to benefit the most by selling. In a similar vein, investors who seized the chance to buy bitcoin early and at a discount had the chance to purchase far more bitcoin for the same amount of fiat currency compared to pricing later in the history of bitcoin.

A newer bitcoin released into the circulating supply has a different value significance than older bitcoin that were produced and bought before. If these “aged” bitcoin are kept in the same wallet for a long time, this suggests a strong belief in the long-term value proposition of bitcoin on the part of the owner. Such activity gives the Bitcoin network a clear signal.

The significance of old bitcoin moving is further amplified by the increased possibility that a long-term owner of dormant bitcoin will go through numerous bear and bull market cycles.

This importance is quantified by the metric of coin days destroyed. “Coin days destroyed is a measure of economic activity that lends more weight to coins that haven’t been used for a long time,” claims Glassnode. By dividing the quantity of coins in a transaction by the duration since they were last removed from a wallet, CDD is calculated.

Bitcoin’s high levels of volatility are frequently criticized. But even in typical IRAs, there is a definite demand for bitcoin in long-term investments. A well-known on-chain indicator called CDD is used to gauge the attitude of long-term investors, or people who value bitcoin’s long-term potential.

What does the present CDD level imply, then?

The 90-day moving average of the CDD for bitcoin fell to one of its lowest levels ever in October 2022, at 0.36. Only the years 2018 and late 2011 have seen previous visits to this exact range. The largest BDD upticks occurred during bull run peaks, as shown in the supply-adjusted bitcoin days destroyed (BDD) chart below, which is to be expected as long-term holders lock in their profits.

In other words, given the asset’s prior selling activity, a significant portion of long-term Bitcoiners are still holding bitcoin. This might be one of the factors influencing bitcoin’s very constant price movement. These holdings can be serving as barriers to selling pressure.

Do we notice a similar pattern if we look at the trading volume of bitcoin?

The trading volume of bitcoin from October 2020 to October 2022 is depicted in the graph above. This chart shows that trading volume was largely continuous and steady from approximately July 2021 to October 2022. A dip that would indicate CDD activity is not visible.

A low CDD in conjunction with a steady and continuous trading volume further shows that the majority of bitcoin moved was by short-term holders. In actuality, bitcoin from 2010 or 2011, bought at prices considerably below $100, has moved the least.

In total, little over 60% of the BTC that is in circulation has not changed in more than a year, according to Glassnode data. The extraordinarily low volatility of bitcoin was also a result of this holding pattern. In contrast, in 2018, after a period of similar price fluctuation, the price fell by 50% in a single month, from $6,408 in November to $3,193 in December.

Even with long-term Bitcoin investors holding the line, is it likely that we will witness a fresh bottom?

Currently, the price of bitcoin and its record-breaking hash rate are inversely related. This is bad news because, even at the lowest price point in this bear cycle, miners must sell mined bitcoin to pay off their loans.

One of the biggest bitcoin mining operations, Core Scientific (CORZ), which accounts for 5% of the network’s overall hash rate, is already considering filing for bankruptcy. In the interim, CORZ stock’s year-to-date decline was 98.32%.

The similar thing happened to Argo Blockchain (ARBK), which dropped by 91.56% and is unable to sell enough assets to offset the losses. Argo’s operational update dated October 2022 states:

If Argo is unable to secure further funding, it would soon experience a cash flow deficit and will have to scale back or stop operations.

Even though these mining businesses will probably end up lowering the Bitcoin hash difficulty, this might still result in another infection spiral in a game of survival of the fittest. This time, centralized platforms that are still lending money to bitcoin mining companies could be the source of vulnerability and market sell-offs. Regarding the persistent macroeconomic challenges, how the market reacts to the Federal Reserve’s upcoming actions may ultimately result in a slight increase in the price of bitcoin that will allow miners to continue operating.

Investors frequently flee risky assets like bitcoin because the Fed raises the cost of money and borrowing, strengthening the currency in the process. The dollar becomes even more dominant when investors predict a recession because they rush to buy cash as a safe haven.

Likewise, the Fed’s stance against rapid tightening – a departure from its planned hike timeline — may calm the market.

In light of this, the so-called “Fed pivot” should not be interpreted as a move back toward lower interest rates instead of a slowdown that could result in a hike of only 50 basis points in December (if incoming inflation data favors it). However, given the current tense market situation, that might be enough to spark a brief bounce or at the very least prevent a fresh bitcoin bottom.

Data from CDD and bitcoin trading volume gives us an interesting observation despite the numerous factors driving investors away from risk-on assets, including the Fed’s battle with 40-year-high inflation, a coming energy crisis in Europe, ongoing global supply chain problems, and even Bitcoin’s mining difficulty. Long-term investors appear to be more certain than ever that bitcoin offers a long-term value proposition. These holders are currently selling bitcoin for one of the smallest prices in the network’s history.