Some people believe that the cryptocurrency market cycle is ending, while many others believe that the market still has a lot of room to grow and gain more market cap. In 2021 and early 2022, the cryptocurrency market has gone through a roller coaster of volatility. The fear and greed index has shifted many times moving from fear to greedy and back down to fear and back again to greedy multiple times. So, it makes a lot of sense as to why we have people with bearish sentiment and while others are bullish on the cryptocurrency market.
In this article, I want to look at on chain data by analyzing the behaviors of Bitcoin holders (aka hodlers) based on the sum coin age distribution. This data shows the distribution of long term holders and short term holders with UTxO data. UTxO is the abbreviation for unspent transaction output which is to the amount of digital currency on an digital address that someone has left remaining after executing a transaction. In this article, we will look at bitcoin.
I start this by comparing the BTC price to BTC holders in the age category between 3–5 years. I are looking at the long-term holders first because they hold majority of the Bitcoin supply.
In the chart above, the first thing that really caught my eye was the increase for the 3–5 yr holders. We can see that there were 2 market cycles where we saw this increase happened. The first increase of 3–5 yr holders was during the first half of 2017. This happened before BTC’s price going parabolic at the end of 2017 and going into 2018. What’s interesting is that we are seeing similar increase throughout 2021 and early 2022.
Let’s look at what happened when we see a decrease in 3–5 yr holders. And we do this by looking at the previous market cycle and comparing it to BTC’s price.
In the chart above, we see that when 3–5 yr holders was decreasing, we see that BTC price went to the 2017 all time high. We also see that following BTC price hitting all time high, there was multiple decreases in BTC price soon after which followed the chart direction of the declining 3–5 yr holders. However, before drawing and announcing any conclusions, let’s look at the 2–3 yr holders age group.
What’s interesting with this group is that we see increases happening at an earlier stage when comparing to 3–5 yr holders.
What’s also interesting is that when we start to see a decline in the 2–3 yr holders age group in the 2017 previous market cycle, we also see the 3–5 yr group increasing. Therefore, it means 2 things;
- People in the 2–3 yr age group has aged into the next group of 3–5 yr, meaning they hit the 3 year age mark.
- Or, there was a transfer of assets from 2–3 yr holders to 3–5 yr holders.
In the 2021 crypto market cycle, we start to see the same behavior happening, a decline in 2–3 age group and an increase in the 3–5 yr age group.
You can also check out my video where I charted this and talked about it on a live recording session.
The last on chain data I want to look at is holders holding BTC for less than 1 year.
In this chart, we see the spikes in the <1 yr holder age group during market tops. This makes sense because during market tops, there are normally a lot of news and media coverages which attracts people to the market.
This spike indicates where the wave of new market participants are entering the market. So, how does long term holders respond to this?
In this chart, during the spike of new market participants, we can see the long-term holders decreasing. Which leads me to interpreting this as a long-term holders sell off. Keep in mind that long term holders hold majority of the Bitcoin supply. So, they basically dumped their BTC holdings into the market where you can see short term holders accumulating and buying the dumped supplies. Eventually, enough BTC supply is dumped onto the market and leads the market into a bear market cycle.
In 2021, we see this behavioral cycle starting to build up similarly to the 2017 market cycle from a behavioral holder’s perspective based on age group. I believe that with all the new marketing regarding cryptocurrency exchanges like Coinbase and FTX, and institutions announcing that they are entering the NFT and metaverse space, this will bring a lot of exposure to people. I believe this next wave of market participants will spike the data for the short term holders of less than 1 year similar to the spike back in the 2017 market cycle. This still is yet to be seen but there’s build up to seeing this possibly repeating again.
This leads me to believing that we are somewhere around here in the cryptocurrency market cycle based on behavior.
Please keep in mind that this article is not financial advice and is for entertainment and educational purposes. This is my analysis of what has happened in the market and is not for anyone to use for their financial decisions. All charts are made by me using CryptoQuant. Please use my referral link to signup and get access to reading and using on chain data to better your analysis. https://cryptoquant.com/sign-up?my-friend=bmwm1g9d
