Bitcoin’s fourth halving is just around the corner, and given the impressive ROI seen in previous cycles, this will remain an area of excitement for investors.
However, curiosity is aroused as to whether the halving is the main factor that kicks off the price increase cycle or if it is just one of many factors driving prices higher. In this regard, this issue can be explored from the two perspectives of Bitcoin's market supply and investor behavior patterns.
According to the Bitcoin age as parameter heuristic, the supply for short-term investors currently stands at 2.33 million Bitcoins, which is a multi-year historical low. The short-term supply of Bitcoin in this statistical caliber refers to the number of Bitcoins that have been traded on the chain no more than 155 days since the last Bitcoin was spent.
In addition, the hot supply, which is the number of bitcoins that are less than one month old, reached 1.39 million bitcoins. In addition, the number of bitcoins in open contracts (about 410,000 bitcoins) can also be regarded as part of the bitcoin supply in the derivatives market. Overall, the hot supply is equivalent to 5% to 10% of the circulating supply in daily transactions.
By examining the spending behavior of Bitcoin wallets, wallets can be divided into non-liquid buckets, liquid buckets and high-liquidity buckets. There is significant overlap between liquidity, high-liquidity supply, and trading platform balances. This overlapping multi-year consecutive downward trend indicates that Bitcoin is moving away from exchange wallets and into illiquid wallets with little transaction history.
It is important to note that the balance of a Bitcoin trading platform and the role of an institutional-grade custodian are important factors. Starting in March 2020, there was a significant increase in demand for GBTC and custody products, both of which are often classified as Bitcoin’s illiquid supply.
In summary, based on the available information, the available supply of Bitcoin is relatively low, at about 23.8% of the circulating supply, which is at a historical low. This means that there are fewer Bitcoins available for investors to make short-term transactions relative to the past.
What is certain is that in the Bitcoin market, various available supply indicators, including cold storage, custody products, and wallets transferred from trading platforms, speculators, and active transactions to long-term holders, all show a downward trend. This trend has clearly accelerated after the massive sell-off caused by the collapse of 3AC and LUNA-UST in June 2022.
By overlaying the inverse indicators of savings and preservation, we can see that a significant gap is forming in the supply of storage in the Bitcoin market. Storage supply includes supply from long-term holding investors, illiquid supply and vault supply. This discrepancy indicates that Bitcoin is moving away from trading platforms, speculators, and active trading and into cold storage, custodial products, and wallets of long-term holding investors.
Illiquid supply refers to the amount of Bitcoin in wallets with extremely limited spending history. According to the data you provided, the illiquid supply is growing at a rate of 180,000 Bitcoins per quarter, which is 2.2 times the issuance.
Long-term investors and vault supply also show similar accumulation patterns. This investor behavior seems to be divided into three stages: mid-bear market, late bear market and halving period. During the halving cycle, a large number of investors are expected to buy Bitcoin. An assessment of wallet size shows that since February 2022, the accumulation rate of Bitcoin users has exceeded the new issuance. The duration of this period has created the longest record in history and is still breaking. This reminds us of a saying in the market: bear markets create subsequent bull markets (and vice versa).
From a behavioral perspective, long-term Bitcoin investors tend to buy low and sell high, which causes Bitcoin's low cost basis to be revalued to a higher cost basis. This means that Bitcoin purchased over a period of time can be sold at a higher price, resulting in additional profits for the buyer. This capital rotation process requires additional capital inflows to support the higher market value. For example, Bitcoin purchased at $6,000 in 2018 can be sold at $60,000 in 2021. For the buyer, the purchase behavior in 2021 requires 900% additional capital inflows compared to the previous purchase.
Although the current storage supply is increasing, another opposite situation will also occur. When investors make profits by buying low and selling high, their storage supply is reactivated and reinvested in the market's liquidity cycle. This means that part of the Bitcoin supply is transferred from long-term holders to traders and active transactions, increasing the liquidity of the market.
Liquidity metrics describe how much change in realized market cap needs to occur to change the total market cap of the Bitcoin market by $1. Observing that in late bull markets, larger capital inflows are required to achieve smaller changes in market cap, this may be an unsustainable situation. During bear markets, price volatility may become more volatile as capital and investors flee. The median metric suggests that Bitcoin's supply and liquidity are relatively tight, as small capital inflows or outflows can have a large impact on market cap. This is consistent with the supply dynamics discussed above, where "available supply" is at historical lows, and rising storage rates cause the market liquidity to continue to deteriorate.
Summarize
In summary, Bitcoin halving may be one of the important factors leading to price increases. From a supply perspective, the reduced available supply and the transferred savings supply may have a positive impact on prices. At the same time, the buying behavior in investor behavior also shows investors' interest and confidence in Bitcoin. However, there are many reasons for the price increase, and halving is only one of them. Other factors such as market sentiment and macroeconomic environment are equally important. Therefore, various factors should be fully considered in investment decisions.
