Widely discussed is the belief that bitcoin’s fate (BTC), is tied to what Federal Reserve (Fed), does. Many traders who are trying to predict the next bull run have been waiting for the Fed to declare victory over inflation, and to stop tightening liquidity. One observer stated that peaks of dormant supply are springboards to upwards price action.
The Fed’s decisions are certainly important. However, indicators that are not related to macroeconomic factors, and which are unique to crypto markets, such as coin dormancy metrics could also be valuable in timing the next bull market.
Dormant supply peak are springboards to upwards price action,” Nike Bhatia (author of Layered Money) and Joe Consorti , market analyst, wrote in The Bitcoin Layer newsletter.
Bhatia said that bitcoin’s tendency for sharp multi-month rallies following a peak in the percent of circulating supply was noted by Bhatia.
Bitcoin rallied 4000% in 2017-18
In January 2016 there was a high amount of dormant inactive coins. This peak occurred before a major 21 month bull run which saw prices rise from $450 up to $20,000, a remarkable 4,340% increase.
Bitcoin went crazy after the metric peaked during the third quarter 2020. It soared from $10,000 to $60,000 in six months, to April 2021.
According to data from Glassnode, the record for bitcoins that have been dormant for less than a year was 65.76% at press time.
Bitcoin could see another meteoric rally if history is any guide.
Bhatia stated that if two-thirds (or more) of bitcoin are off the market (not available for sale for an extended period of time), the price will rise when more buyers enter to bid for a finite supply. This is a scenario that has occurred in bitcoin twice before. He also noted that there are more unspent one-year-plus old coins than ever.
Limitations on dormant bitcoin data
Each set of limitations that on-chain data presents has its own limitations. The metric doesn’t account for rapidly growing bitcoin-linked trading vehicles such as derivatives, tokenized Bitcoin, exchange traded funds, exchange traded products, trusts, and exchange-traded goods. These alternative vehicles can still hold coins and are active even though they are not visible in on-chain metrics.
However, it is important to note the relationship between price trends and inactive supply.
“Is it causal or circumstantial?” We don’t know. However, data that moves in inverse tandem in past cycles catches our attention and demands our attention,” Bhatia stated.
According to CoinDesk data, Bitcoin traded hands at $19750 at press time. This is a 0.5% decrease over a 24-hour period.