On October 21st Bitcoin (BTC) broke out, rising by about $1,000 on the day. Since then it has topped $13,000 and set new 2020 highs.
For crypto veterans this is a somewhat familiar story. BTC is notoriously volatile and has had many crazy price swings throughout its history.
But something is different this time around. Ever since the March crypto crash, BTC has been growing in ways that we have not seen in previous bull runs. On-chain fundamentals hint that it could be poised for its biggest breakout yet.
BTC has had a low correlation with both gold and the U.S. dollar throughout most of its history. But things changed on March 12th. As panic over COVID-19 rapidly set in, equities around the world crashed. Crypto went down with the rest of the markets, with BTC and ETH price both dropping about 50%. Since then, BTC’s correlation with gold has been near all-time highs while it’s correlation with the dollar has been at all-time lows.
BTC has often been referred to as digital gold, and data is increasingly supporting that claim. In the past few months public companies such as MicroStrategy and Square have announced that they are buying and holding BTC as a treasury reserve asset. Additionally, on-chain data shows that since March 12th BTC holding (aka HODLing) has increased while price has risen, signalling that BTC is increasingly being used as a store of value, similar to gold.
One signal of on-chain holding is the percent of supply held for at least one year (or in other words, the percent of supply that has not been moved on-chain as part of a transaction). As of October 25th about 62.5% of the total BTC supply had been held for at least 1 year, which is close to all-time highs. Historically, the percent of supply unmoved for at least 1 year has peaked during periods where price has been at local lows, as seen in the below chart.
BTC’s velocity is also at its lowest levels since 2011. Velocity measures the amount of times an average unit of supply has been transferred in the last year. High velocity means relatively high turnover. A decreasing velocity suggests BTC is trending towards being used as a store of value as opposed to a medium of exchange.
There also appear to be more holders than ever. The number of addresses holding at least $100 worth of BTC hit a new all-time high of 9.74M on October 22nd. A single person or entity can control multiple addresses, so this only shows an approximation of usage. But the trend suggests that the amount of BTC holders is increasing, which is a positive signal for BTC’s long-term adoption.
BTC supply is increasingly being moved off of centralized exchanges, and presumably held by individuals. While there are many factors involved in exchange supply, this could signal that more and more BTC holders want to hold and custody their own BTC. As the old saying goes: not your keys, not your Bitcoin.
Shrinking Supply Issuance
While holding activity has been increasing, BTC’s supply inflation has been decreasing. Every four years, Bitcoin has a halving event where supply issued through block rewards is cut in half. Bitcoin’s third halving happened on May 11th, 2020. The following chart shows daily BTC issuance (green line, right-hand axis) vs price (red line, left-hand axis), using a log scale.
Historically, BTC price has hit a local peak within 1.5 years of each previous halving. With holding activity increasing and the halving less than six months in the rearview, all signs are signaling that BTC is poised for takeoff.