Data: Long-term holders didn’t sell any BTC?

Bitcoin is once again treading into uncharted territory. This week, Bitcoin was officially voted into legal tender in El Salvador, a truly historic moment for the industry. It also seems likely that the next major source of mining energy will come from volcanoes.

The week started with a relatively weak performance, selling off to a weekly low of $31,185. However, the market reacted to the swift passage of the bill in El Salvador by bouncing back into the recent consolidation range to post an intraday high of $39,269.

Bitcoin appears to be transitioning from a "gradual" to a "sudden" phase after becoming the standout macroeconomic asset in 2020. This week, we investigated the on-chain behavior of short-term traders and long-term holders in response to weekly events.

Profitable supply fluctuations

The high volatility of the Bitcoin market makes it a magnet for traders who are able to monetize price fluctuations in both directions. At the same time, Bitcoin's strong fundamental properties make it an ideal store of value asset for long-term investors. In a choppy market structure, we can gain insight into the balance of supply and demand, as well as the degree of accumulation by short-term and long-term holders, by observing the changes in profitable supply during price fluctuations.

The price rebounded twice this week, first after El Salvador voted to pass a legal tender bill and then again on Sunday afternoon. In both waves, the value of profitable UTXO holdings jumped by about 1.5 million BTC. In both rallies, from a low of $31,700 to a high of $39,200 on Sunday.

While some of this cryptocurrency may have been purchased in January (at a similar price range) and remained unspent, we can estimate that at least 1.985 million BTC (~10.5% of circulating supply) has an on-chain cost basis between $31k and $39k.

We can reasonably assume that this newly profitable supply is held by roughly three different groups.

• HODLers who bought cryptocurrencies in early January 2021: and have not sold them yet. These cryptocurrencies are currently crossing the 155-day long-term holder (LTH) threshold to expire.

• New HODLers: They are buying the dip into the current range and are likely to hold through any future volatility (hard to separate in the data at the moment).

• Traders and Short Term Holders (STH): They are trading price volatility and are more likely to liquidate at price targets or downside moves. They are also more likely to use derivatives markets and leverage.

Trader Profits and Short Positions

Let’s start with the last group, traders and STHs who are most likely to generate selling pressure.

The chart below shows the profitability of the supply held by STH (green) and STH-SOPR as a measure of profitability (pink). There are two key observations here.

1. During the price rally, for every spike in STH Profitable Supply (green 1, 2, 3, 4), STH-SOPR quickly spiked and remained at a higher level (matching pink 1, 2, 3, 4). This suggests that a portion of this STH group may have profited from swing trading or been shocked by the intraday price fluctuations.

2. In the price rally following the El Salvador vote, about 737k BTC owned by STH returned profits (about 37% of the 1.985M in the previous chart). Therefore, we can estimate that of the cryptocurrencies with a cost basis in this price range, about 63% are actually LTH-owned cryptocurrencies purchased in January 2021, and 37% are recently accumulated.

Keeping the analysis focused on short-term traders, we can see that futures open interest is climbing, albeit slowly, especially compared to the first quarter of 2021. Total open interest fluctuated between $10 billion and $12 billion last month, still down about $8 billion (40%) from the previous peak in mid-May.

Futures volumes were similarly subdued, especially relative to the $120 billion in volume during the May sell-off. Volumes increased by about $15 billion in the days following the El Salvador vote. Volumes began to decline again in the second half of the week.

Certainly, traders in the derivatives markets appear uncertain about the direction of the macro markets and therefore keep leverage levels and trading volumes relatively low.

Regarding perpetual futures funding rates, after turning extremely negative during the crash, they have remained fairly neutral over the past month. Funding rates have fluctuated between +0.005% and -0.010%.

Interestingly, during both of the above-mentioned price rallies, the funding rate turned negative, indicating that there was more bearish bias and traders were more willing to sell into the rallies.

Typically, however, the large funding rate provides a contrarian indicator as it shows that many leveraged traders are leaning in the same direction. While the negative rates above are not particularly large, there were large short liquidations in all three examples.

During the past few months of consolidation, every time the funding rate (blue) turned negative, the price would rebound and more and more shorts were liquidated (orange).

Long-term holders continue to HODL

Now let’s turn our attention to the Long Term Holders (LTHs) group, which includes all buyers of cryptocurrencies prior to January 10, 2021. The LTH Net Position Change shows the monthly net rate of cryptocurrencies that expire within the 155-day threshold, including any sold cryptocurrencies.

Below is a chart mapping the price range from 155 days ago ($13k to $42k) to the acceleration rate of those cryptocurrencies expiring today. This suggests that a large amount of cryptocurrencies were bought during the early bull run and that there was essentially no selling. The current maturity rate is over 400k BTC/month, which is much larger than the ~160k BTC we estimate was sold during the May capitulation event, most of which were STHs.

We can also see this maturation of cryptocurrencies in the Liquidation Cap HODL Wave, which presents the relative proportion of the cryptocurrency supply that makes up the Liquidation Cap. Not only do we see very young cryptocurrencies (<1 month old) falling due to low recent on-chain transaction volume, we also see an expanding share of cryptocurrencies between 3 and 12 months old. These are the coins that were HODLed throughout the bull run from 2020 to January 2021.

Some LTHs have and will take profits on their cryptocurrencies. Throughout all Bitcoin cycles, it is common that LTHs sell most of their cryptocurrencies during bull rallies, and on retracements, their selling slows as conviction returns. This behavior can be seen in the LTH-SOPR, which tracks the total profit multiples realized by LTHs.

After peaking at around 7.5x (LTHs realized 750% profit) in March-April, it can be seen that the profits realized by LTHs in this price correction are declining, even when prices are trading sideways. LTHs are currently realizing a profit multiple of 3.2x, which indicates that the total cost basis of the cryptocurrencies they sold is about $11,000

A similar observation can be seen from the CDD-90 indicator, which plots the sum of daily cryptocurrency destruction over the past 90 days. The decline in CDD-90 shows that older cryptocurrencies (with greater cumulative lifespan) are still not being consumed. This suggests that there was no panic selling of LTHs during this period of volatility, and therefore it is more likely to be re-accumulation rather than cashing out.

To further confirm this, we checked the binary CDD indicator with a 7-day moving average applied. The basic binary CDD indicator will return 1 or 0 when the daily number of destroyed cryptocurrencies is greater or less than the long-term average. By moving averages, we can see the trend of old coins being consumed (uptrend/high values), or remaining dormant (downtrend/low values).

The binary CDD indicator reached an extremely low value throughout June, coinciding with the bullish trend that began in early 2020. This suggests that long-term holders are not selling their cryptocurrencies at all.