Long-Term Bitcoin Holders Should Still Worry About One More Thing
According to recent Glassnode research, long-term bitcoin holders aren’t selling despite the leading cryptocurrency’s price tumble from about $64,000 to $30,000. Glassnode observed that as BTC/USD bids were crashing, there was a slight rise in bitcoin reserves held in wallets, but the unspent output was lower. The research also indicates that miners have been on a bitcoin collection spree. Hence, there has been a decline in active BTC supply in recent times.
Bitcoin supply decline because of long-term holders and miners. Source: Glassnode
During this period of decline, the most prominent sellers were the short-term bitcoin holders. Per Glassnode, new bitcoin investors sold in a panic this month because bitcoin declined by almost 40% despite reaching an all-time high within the same month. However, short-term BTC traders continue to experience double-digit percentage losses because of bitcoin’s high volatility. As of May 20, TradingView’s BTC volatility index closed at about 19.70 despite closing at about 2.0 as of April 2, 2021. Those figures represent a 940% increase between April 2, 2021, and May 20, 2021. During the same timeframe, the BTC/USD pair had attained a peak price of $65,000 before some price corrections to now settle at $30,000.
BTC Volatility Index. Source: TradingView
Investors’ fear and doubt about bitcoin’s subsequent market bias showed as increasing BTC price fluctuations. The intraday candles in the image above indicated that the volatility continued to remain high – yesterday’s volatility was about 35% lower than that of the previous session. However, the general trend remained down.
The Catch
Glassnode analysts believe that there would be a time for long-term holders to either gain or lose (PnL). The online analytics network noted that “its proprietary metric for checking the exhausting levels of long-term holders is now at 0.75. This level is the make or break point between previous bull and bear cycles”. Glassnode’s proprietary metric level is what the firm uses to determine the ability of long-term holders to maintain BTC breaks and gives them a sign of their profit or loss from the market.
PnL LTH. Source: Glassnode
“This metric had only predicted a recovery from this type of situation once – that was the 2013 ‘double pump’ situation. If long-term holders see that their paper gains remain on a decline, they might be forced to sell and create an overhead supply. Consequently, there would be dip-buying which would be similar to the ‘double pump’ situation that happened eight years ago.”
The World’s Largest Economy Vs A Bitcoin Bull
Now, the united states’ trillion-dollar debt might be a reason why the predicted bitcoin double pump might be different from that which happened eight years ago. The debt-GDP ratio of the country is now at an all-time high, dating back to the second world war. Yet, the American president revealed that the government is set to roll out a new $6 trillion spending plan for next year.
If that happens, then the world’s biggest economy would be spending over $8 million every year by 2031, which would amount to a yearly fiscal deficit of more than $1.25 trillion and close to $2 million for next year. Hence, economic analysts fear that this massive surge in government expenditure would cause a significant increase in inflation rates. That might be the reason for traditional investors’ interest in bitcoin because it is inflation-proof.
Bitcoin enthusiasts argue that the digital currency is inflation-proof because there is a finite supply of bitcoin tokens that must be available, which is a stark contrast to the U.S. Dollar whose supply is infinite. Some of the well-known traditional investors that have invested in bitcoin are Ruffer investments, MicroStrategy, Square, and Tesla.
Mike Novogratz, Paul Tudor Jones, and Stan Druckenmiller have staked a significant portion of their investment portfolio in the leading cryptocurrency. Kraken’s director of growth marketing remarked that “Bitcoin was created for this period. Bitcoin is the safest escape route from the highest ever cash printing situation in our existence.”
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