Bitcoin Rally May Not Have Hit Top Yet, Here’s Why

The historical pattern in this Bitcoin on-chain indicator may suggest that the ongoing rally hasn’t reached its top yet.

According to a post from the on-chain analytics firm CryptoQuant, the 1-year inactive supply hit a high back in March of this year. The “1-year inactive supply” is an indicator that measures the total percentage of the Bitcoin supply that hasn’t moved on the blockchain since at least one year ago.

This supply belongs to one of the two major cohorts in the BTC market: the “long-term holders” (LTHs). This group includes all investors who bought their coins more than six months ago, so the 1-year inactive supply metric doesn’t measure their entire supply, only a segment of it (although a rather large one).

The LTHs hold a special place in the Bitcoin economy as they comprise the most resolute investors in the market. The selling and buying behavior of this cohort can, therefore, have long-term implications for the sector.

Here is a chart that shows how the 1-year inactive BTC supply has changed over the lifetime of the cryptocurrency and how it has seemingly taken its place in the different price cycles:

As the above graph shows, the Bitcoin 1-year inactive supply has historically trended up during the bear markets. This means these investors generally participate in accumulation in the leadup to and during the bear markets.

The LTHs then continue to hold onto their filled-up bags and expand as they transition toward a bullish period. These investors show this behavior throughout the bull market buildup phase; when the rally starts reaching its last stages, these holders start selling to take their profits.

This pattern has repeated throughout the different cycles, showing that the LTHs’ behavior hasn’t changed too much. However, one thing that differs between the cycles is that their supply has been going up overall. This would partly be attributed to all the Bitcoin that has been getting lost due to wallet keys becoming inaccessible.

The percentage of the circulating supply held by this Bitcoin investor segment hit an all-time high just back in March of this year, reaching a value north of 67%. These investors have shed some coins since then, but the difference in their supplies between then and now is negligible (13.1 million BTC vs. 13 million BTC).

The April 2019 rally, which resembles the current one, also saw the LTHs holding tight until midway through the rally, when they started selling, and the cryptocurrency reached the top just a while later.

Suppose the Bitcoin price and the 1-year inactive supply will follow the same pattern in this current rally as during all these past bullish periods. In that case, it seems likely that the top hasn’t been hit since the LTHs haven’t started participating in any significant distribution yet.

At the time of writing, Bitcoin is trading around $28,300, down 4% in the last week.