Bitfinex Alpha | Bitcoin Supply Unmoved as Demand Pressures Rise

This week in Bitfinex Alpha, we analyse a number of different metrics that demonstrate to us that we continue to see huge conviction among Bitcoin holders to maintain their positions, even as the price continues to reach new highs for the year.

An unprecedented 13.65 million Bitcoin, approximately 70 percent of the total circulating supply, has not been transacted or moved for over a year, a new all-time high. In addition, the number of BTC that has remained unmoved for over two years, is now standing at nearly 11.2 million, or almost 60 percent. This remarkable supply inactivity represents both a significant underpinning of the price, as well as source of upward pressure as increasing demand chases limited supply.

The current Bitcoin velocity, a measure of how frequently Bitcoin is traded or used for transactions, also stands at a historically low level of 15.78. This indicates a significant change in sentiment compared to the last bear market cycle, where Bitcoin velocity peaked at around 80. It is not surprising, therefore, that BTC reached a new year-to-date high of $38,410 on November 24th, as holders become reluctant to sell and buyers seek out supply. We calculate that 83.7 percent of current holders are in profit, but selling pressure is so far muted. One reason for this is that the actual size of these unrealised gains remains modest.

As long-term holders (LTH) see their stash grow to new record highs, we see short-term holder (STH) supply declining to a new all-time low. This contrast between LTH and STH supplies reflects a market with an ever-strengthening long-term holder base and a reduction in speculative trading.

The clear narrative that we see in the crypto markets contrasts sharply with the sometimes quite contradictory signals emerging from the US economy. For example, a notable decline in reported business equipment expenditure has been interpreted as a direct outcome of the current high levels of interest rates. But even as this represents a clear indicator of cautiousness,  the labour markets remain tight with a highly surprising 10.3 percent drop in new jobless claims reported last week, reaching numbers that are even lower than pre-pandemic levels. 

Similarly, the housing market saw a dramatic decline in existing home sales, reaching their lowest point since 2010 – another casualty of the highest mortgage rates in two decades, coupled with a limited housing supply. And consumers remain careful about future prospects: the University of Michigan’s consumer sentiment survey reported that the inflation expectations are increasing.

Not surprisingly, the dollar has been quite volatile, dropping last week to its weakest level since late August before rebounding again in an intraday gain not seen in several weeks.

The news of the week was, of course, dominated by the fines agreed for Binance and for its CEO Changpeng Zhao, as he and the exchange concede accusations of money laundering, sanctions violations, and financing terrorist activities. While not entirely positive for the market, it is notable that the Bitcoin price barely moved on the news.

In the meantime, in jurisdictions such as Hong Kong, licenses are being awarded so that more crypto companies can come under the purview of regulatory supervision. The latest beneficiary was Victory Securities, whose approval by the Securities and Futures Commission, makes it the first company to win a licence to provide both trading and advisory services.

In the United Kingdom too, the embrace of digital asset technology is also continuing. The Investment Association announced it is pioneering the integration of blockchain technology in asset management through tokenisation to try to bring in enhanced efficiency and transparency into the industry.

And in South Korea, it announced the role-out of a CBDC pilot, including experimenting with a simulated carbon emissions trading system, showcasing its forward-thinking approach to financial technology.

Happy Trading!

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