The Daily Dive #103 - Short-Term Holder Dynamics

As bitcoin price has fallen over 17% from all-time highs, there has only been a minor distribution of coins from long-term holders over the last month. That leads us to analyze the current market dynamics of short-term holders and how that compares to previous bull and bear markets. We last covered these dynamics in-depth in The Daily Dive #086

First, looking at the cost basis (realized price) of short-term holders, we see a clear trend in bear and bull market cycles. During bull markets, the price of bitcoin is trending above the cost basis of short-term holders as new capital is entering the market and competing to secure sufficient allocations, bidding the price up in the process. During bear markets, the cost basis of short-term holders is above the price. 

Oftentimes, the short-term holder cost basis acts as support and resistance during bull and bear markets, respectively. 

Another way to visualize this dynamic is with the market value to realized value (MVRV) metric, which takes a ratio of two inputs. 

Notice the dynamics between the short-term holder MVRV and the ensuing price action of bitcoin.

This brings us back to the fundamental driver of bitcoin cycles. Bull markets are a result of a supply squeeze as hodlers hoard a dominant majority of circulating supply, forcing any new capital allocators looking to secure a position to have to bid up the price. This means that during bull market conditions, the cost basis of short-term holders is appreciating relative to the cost basis of long-term holders. 

This dynamic can be seen clearly with a ratio (displayed in purple) of the two: 

  • Downwards sloping = STH cost basis appreciating relative to LTH cost basis = Bull

  • Upwards sloping = LTH cost basis appreciating relative to STH cost basis = Bear 

When highlighted with green and red zones, the accuracy of the metric is astounding. 

The good news? It’s a bull market currently. Don’t let the recent consolidation and price action convince you otherwise.