Market Secrets: How LTH sell coins to STH and then Buy them back?
The first three quarters of this year turned out to be very successful for the majority of short-term Bitcoin holders. Since the start of the year, this cohort has distributed 1.3M BTC across the network, totaling $35B.
Since the beginning of the year, the realized capitalization (the blue line) of STH has risen from $79B to $114B, resulting in a change of $35B.
It’s important to understand not that the STH bought a significant number of coins and locked in profits over the first three quarters, but who sold them these coins?
Let’s look at the BTC: STH LTH Net Position Realized Cap chart. On it, the weekly change in realized capitalization for the LTH cohort is indicated in 🔵 blue.
At the $25K level, experienced LTH investors 🔵 sold to the younger STH 🟠 they then sold again at the $30K level. For clarity, the April blue spike 🔵 of LTH distribution lasted for 6 days at the $10B level. These were all “sales” to new investors.
In essence, the experienced LTH cohort sold coins to the less experienced. Then, the price drops, and the inexperienced 🟠 STHs begin to panic and sell BTC at a loss that was purchased earlier. If we look at the first chart, we can see that it has now dropped below 0 and turned red.
At this point in the first chart, we see that the STH cohort is at a loss and is capitulating, selling coins previously received from the LTH cohort, which the LTHs are now eagerly buying back.
Viewed through the lens of STH LTH Realized Cap Drawdown, it becomes clear that experienced LTHs have an average realized drawdown of 10–15%, while the drawdown for STHs can reach up to 80%.
Despite the period of extremely low volatility since the start of the year, as reflected in the BTC Velocity chart, and the low transaction volumes of the primary cryptocurrency across the network, as seen in the BTC Total Transfer Volume chart, we observe a recurring year-to-year pattern in which more experienced players sell coins to less experienced players.
Subsequently, the price drops, and less experienced players panic and sell to the more experienced, after which the price starts to rise further.
👉 Follow my Twitter where I post daily macro analysis of the Bitcoin market.
