Exploring Bitcoin Available Supply Among Long-Term Holders
We’ve been looking at Long-Term Holder and Short-Term Holder Supply ever since Glassnode published this article, and it gave us new ways to slice up cohorts of market participants between the newer, presumably weaker hands and the older veteran HODLers that comprise Bitcoin’s base.
By Glassnode’s analytical definition, Long-Term Holders are any coins that have been held for 155 days or more while Short-Term Holders are any coins newer than that. The two lines above are inherently inverse of each other. As I see it, this has one flaw — it ignores lost coins.
Why does it matter?
This matters in terms of what is available to be bought and sold. When looking to compare newer and older market participants, it makes sense in some instances to leave out coins that are not involved in present day settlements. Otherwise we risk granting a larger importance than deserved to changes in metrics that track the Long-Term Holder cohort. There are estimated to be 6–7 million coins that are permanently lost out of circulation. Why then should we count these as Long-Term Holders? Enter a new possibility:
A new way to slice it
In Glassnode workbench (highly recommended) I created a new metric called Long-Term Holder Available Supply (LTH aSupply). The formula is:
Long-Term Holder Supply - (Circulating Supply - Adjusted Supply)We use Glassnode’s built-in Adjusted Supply metric to account for lost coins, then remove this difference from the Long-Term Holder Supply.
As a tier-2 Glassnode subscriber, the latest date I can see for Long-Term Holder Supply is August 2 2020, when the aSupply was 75.8% of the total (9,483,265 coin out of 12,502,722), considerably less than what is counted today.
Let’s do some napkin math
In lieu of present day-tracking, we can do some presumptive math to get an idea of how LTH Available Supply might alter other metrics. Since Bitcoin has been in a decade-long uptrend, let us assume that all lost coins are 100% in profit. From there, we can use Long-Term Holder Supply In Profit to figure out how much Available Supply is actually in the money.
Below we will use data denominated in BTC from August 2, 2020. Our new metric, Available Supply, will be written below as aSupply for simplicity.
LTH Supply: 12,502,722
LTH Supply in Profit: 11,505,965 (92.0% of Supply)
LTH Supply in Loss: 996,757 (8.0% of Supply)
LTH aSupply: 9,483,265 (75.8% of Supply)
LTH aSupply in Profit: 8,486,608 (67.9% of Supply, 89.5% of aSupply)
LTH aSupply in Loss: 996,657 (8.0% of Supply)
Lost Coins: 3,019,457 (24.2% of Total)
By removing lost coins from Long-Term Holder Supply to create LTH aSupply, we learn that 89.5% of LTH aSupply was in profit at the beginning of August 2020. This is 2.5 basis points lower than the all-in calculation used today, but still demonstrates that ~9-in-10 coins held long term are in the money.
However, the portion of LTH aSupply in Profit is 24% less of the LTH cohort when we exclude lost coins (down to 67.9% versus 92%), which paints a very different picture of the relevant size of this group.
The strength of the Short-Term cohort versus the Long-Term cohort comes into focus when seen through the lens of Available Supply (above). Not only is Long-Term Holder Available Supply (red) a subset of the total LTH Supply (blue), but it neared a potential flippening with Short-Term Holder Supply (green) as recently as the 2018 blowoff top.
For a size comparison, consider this- the current ratio of LTH Supply to STH Supply is 4.12:1, a factor of four-to-one. When we remove lost coins for a truer representation, LTH Supply to STH Supply drops to 3.13:1, a factor of three-to-one. This is a significant reduction.
Where can we use LTH Available Supply?
I believe this could be useful in metrics such as Net Unrealized Profit/Loss (NUPL), Long-Term Holder Supply in Profit, Long-Term Holder MVRV, etc. Currently, the only adjusting we do for LTH is with Entity-Adjusted LTH-NUPL, which filters out presumed “self” transfers but includes everything else. Granting a fairer weighting to active Long-Term Holders may give clearer signal to changes in sentiment and the churning of coins.
Next steps
One hindrance to using LTH Available Supply today is that we cannot simply do math against other existing GN metrics gain an airtight view of this cohort over time. For a true tracking, this likely needs to be tagged at the UTXO level to determine whether the coin is a Long-Term Holder, in profit/loss, and if it meets the criteria of being lost. Barring this level of detail, we can only make comparisons to the nominal coin sizes of the cohorts.
Perhaps we will see a version of this tracking in a future update from Glassnode. If we do, further analysis is needed to determine how removing lost coins affects the measured behavior of Long-Term Holders.
Special thanks to Checkmate of Glassnode for sanity checking my math.
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