Bitcoin Long-Term Holder Supply Breaks 2.5-Year Downtrend

• Long-term holders currently hold around 16.3 million BTC collectively. This is slightly below the all-time high of 16.4 million BTC that was reached in January 2024.
• Long-term holders are often considered as “smart money” by the market, since they are inclined towards buying and not selling during periods of price weakness and overall market uncertainty.
• The last time LTH supply had reached these levels, 2 million BTC was sold back to the market, with investors taking profits due to the increase in the price.

Bitcoin’s reversal of the downward trend is to be expected due to the cyclical nature of the crypto market, which has an accumulation phase and a distribution phase. The accumulation phase, also called the bear market/consolidation stage, is characterised by the rise in LTH, with smart money buying from panicked sellers. At this phase, buying and selling activity takes place simultaneously, and helps stabilise the market by creating a price floor. During the distribution phase, or the bull market, investors witness sharp rises in prices. In turn, long-term holders start to take profits by selling some of their Bitcoin back to the market. The buyers in this case are mostly new market entrants looking for the best way how to buy Bitcoin to profit from the price increase. What constitutes the cyclical nature of the market is this repeated selling behaviour during price rallies followed by long periods of accumulation.

There are several reasons why the rise in Bitcoin’s LTH supply is an important event. The market has been witnessing fluctuations in LTH supply following the launch of spot Bitcoin ETFs, since large amounts of the asset was changing hands. The recent increase in LTH supply suggests that more Bitcoin is now being held off the market. Building on broader market trends and on-chain metrics, the LTH rise has the following implications for the market:

• LTH Accumulation Reduces Market Supply: More than 77% of Bitcoin’s circulating supply is now held in LTH wallets, where assets are rarely moved. This means that a small portion of BTC is available for trading on exchanges. This supply crunch could result in strong impacts on the price even with a minor increase in buying demand, as there is no sufficient liquid supply to absorb that demand.
• Reduced Exchange Liquidity Alters Trade Dynamics: If investors continue to hold BTC for extended periods of time, order books are likely to become less liquid. Consequently, the execution risk for large buyers would increase, since even small orders can result in noticeable price slippage. Institutional investors could manage this by increasing reliance on over-the-counter (OTC) desks and algorithmic trading strategies such as TWAP (Time-Weighted Average Price) with the objective of mitigating negative impacts on market prices.
• Trend Reversal Increases Market Supply: If we see a reversal in the current LTH supply trend, this decline could serve as an early exit signal for institutional risk assessment teams. In this case, large-scale investors are likely to shift from an accumulation approach to that of taking profits. In such instances, more Bitcoin suddenly becomes available on the market, which can put downward pressure on prices because short-term traders often can’t absorb the extra supply quickly enough.

To summarise, the end of the multi-year downtrend shows that long-term investors of Bitcoin are pulling BTC out of circulation, and choose to hold it over trading it. In the current circumstances, it is important for market participants to pay attention to the 16.4 million BTC level, the peak recorded in January 2024. If LTH supply moves above this level, this could mean even more limited availability of BTC for trading across exchanges.