I'm excited to share my latest research on the "Inactive Supply Shift Index", a novel metric that promises to revolutionize how we understand Bitcoin market risks.

What did I do?

I dug deep into historical Bitcoin blockchain data, tracking inactive supply over various periods (namely, one to seven years). By computing weekly changes and stacking them into a composite metric, I crafted the Inactive Supply Shift Index.

Lately, the Inactive Supply Shift Index has reverted to values close to zero, following a period of deep negative readings that coincided with Bitcoin's price exceeding the $70,000 threshold.

Understanding the Shifts:

- Deep Negative Values: These readings flagged significant activity from long-term holders who, after patiently accumulating Bitcoin, began to sell as prices soared. This behavior is often seen as an effort to capitalize on market peaks, contributing to increased selling pressure.

- Reversion to Zero: The return to near-zero levels indicates a reduction in this selling pressure. It suggests a stabilization phase as the influx of Bitcoin from long-term stashes diminishes, paving the way for potential market equilibrium.

Insights into Market Dynamics:

- Peak Selling and Strategic Holds: A surge past key price points like $70,000 can trigger profit-taking among veteran holders. These shifts in long-term holder behavior often provide valuable clues about market sentiment and potential inflection points.

- Signaling Stability: As the index stabilizes, it may signal a pause in aggressive selling, providing fertile ground for renewed buyer interest and potential upward momentum, assuming market demand holds firm.

Utilizing the Inactive Supply Shift Index can empower traders, analysts, and investors to discern between ephemeral volatility and profound market trends. This understanding is crucial for making informed decisions and navigating Bitcoin's dynamic landscape.

Written by onchained