We are living in a HODL paradise
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Unless you have been living under a rock, you’ll have spotted October was a great month for crypto. Bitcoin (BTC) reached all time highs last month and we’ve finally seen a major Australian institution embrace cryptocurrency with CBA’s announcement last week.
So what’s next for the world’s most popular cryptocurrency?
Just like… pretty much everything thanks to the pandemic, there’s a BTC supply shock occurring. Because we’re talking about a purely digital asset, there’s really only one cause: accumulation by long-term holders, or ‘HODL-ers’.
According to Kraken Intelligence’s October Crypto On-Chain Digest, this accumulation may be a driver for BTC’s recent move past $80K. HODL’ing is nothing new, but the latest on-chain data indicates that this supply shock trend is growing despite BTC falling more than -15% in September and surging through October. The data is showing that long-term holders just continued accumulating.
But what about the army of Bitcoin miners we hear so much about – surely they are flooding the supply? The answer here is ‘not really’.
By analysing what we call the ‘0-Hop supply’ (basically: brand new coin activity, it hasn’t ‘hopped’ anywhere) we can see that they took profits in early September, but are now again accumulating.
We can see this in the balance books of the largest public BTC mining firms in North America, including Riot, Marathon, Bitfarms, Hut8, Greenidge, Argo, and HIVE, who have publicly reported that they are holding BTC 20,459 (~A$1.7B).
Needless to say, mining pools are aligned with long-term holders in their bullish sentiment and represent a further contribution to BTC’s latest supply shock.
So, we’re all HODL’ing – but why? You would normally expect a +50% price gain to incentivising large scale profit-taking, whether you’re a Bitcoin whale, an institutional miner or someone who has just dipped their toes into the waters.
Especially when we’re talking about an asset as easily tradable as Bitcoin.
Whilst there’s always some insight to be had from a strong technical analysis, I think sometimes the answer lies in psychology. We are living through an extraordinarily uncertain time – one week the headlines say inflation is out of control and we won’t be able to buy toys for Christmas, another tells us interest rates will rise sooner than the RBA said, and a third lets us know housing prices will crash.
Uniquely, a very similar story is being played out around the developed world at the same time.
Can you really blame anyone for holding onto an insurance policy – of any description – right now?
This article was developed in collaboration with Kraken, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.