Bitcoin Dynamics: Supply vs. Demand
Over 97% of holders in profit
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This week, we explore the rising prices within the cryptocurrency market and examine Bitcoin’s positioning in the market’s current cycle. We deep dive into the stage of the cycle and explore how investors have responded.
Network Fees — Sum of total fees spent to use a particular blockchain. This tracks the willingness to spend and demand to use Bitcoin or Ether
- The transaction fees for Bitcoin and Ethereum have risen by 20.86% and 43.56% respectively, reflecting an increase in the prices of these assets, as transaction fees tend to escalate in tandem with their market values.
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges
- $906M of Ether left CEXs, making it the eight consecutive weeks of net outflows for the second largest crypto-asset
Over 97% of Holders in Profit
IntoTheBlock determines the average purchase price of tokens for any address holding the asset, and compares it with their current market value. If the Current Price exceeds the Average Cost, the address is considered “In the Money.” Conversely, if the Current Price is below the Average Cost, the address is deemed “Out of the Money.”
More than 97% of Bitcoin addresses are currently profitable, marking the highest level of profitability since November 2021.
- The last occasion we observed such a significant proportion of profitable addresses, the price of Bitcoin was around $69,000, nearing its all-time peak.
- Given the substantial percentage of addresses in profit, the selling pressure from users attempting to break even no longer has a significant effect.
- For newcomers entering the market to purchase coins, they are essentially buying from existing users who are already realizing a profit.
To gauge the current strength of this price trend, we closely examine the longest Bitcoin holders, specifically those who have maintained their coins for more than one year.
13.6 million Bitcoin are in the possession of Hodlers — These are users who have held onto them for over a year, these are typically regarded as long-term investors.
- These users are known for their ability to effectively time market cycles, often beginning to buy as prices approach the cycle’s bottom and starting to sell as prices near a cycle’s peak.
- On January 16, the Holding Time of Transacted Coins indicator showed an average selling period of over a year, reaching its highest point since February 1, 2022. Additionally, there has been another instance this year where coins transacted had an average holding time of over a year, on February 19.
The upcoming Bitcoin halving is projected to occur on April 19th, 2024, at which point the supply of new bitcoins awarded to miners will be reduced by half.
Around 900 Bitcoins are mined daily worldwide — these are allocated to miners as rewards for their role in validating and securing the network.
- Bitcoin miners who successfully validate transactions currently receive 6.25 new Bitcoins for each block mined. The upcoming halving will cut this block reward to 3.125 BTC.
- Every Bitcoin halving event decreases the number of new Bitcoins generated per block, leading to a reduction in the inflation rate.
- As Bitcoin becomes more scarce and demand rises, its price is likely to increase in accordance with the principles of supply and demand economics.
The dynamics of Bitcoin’s market, including halving events and the behavior of long-term holders, have played a significant role in influencing its price throughout the past cycles. As these factors contribute to a decrease in supply amidst rising demand, economic principles suggest a potential increase in Bitcoin’s value. Observing these trends offers valuable insights into the future trajectory of Bitcoin’s price movement.
