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The following is taken from a recent edition of Deep Dive, Bitcoin Magazine’s premium market newsletter. To be among the first to receive this and other on-chain bitcoin market analysis straight to your inbox, Subscribe now.
We have mentioned the base cost ratio of long-term holders (LTH) and short-term holders (STH) of Bitcoin several times in our previous analysis.
For an introduction to the metric, read Daily Dive # 070 – Baseline Short Term: Long Term Cost Ratio.
A TLDR:
When the realized price ratio STH: LTH increases, it means that the cost base of STH increases relative to LTH, and conversely, when the realized price ratio STH: LTH decreases, the cost base of LTH increases relative to the cost base of STH.
This is extremely revealing, as the price of bitcoin rises when the marginal seller is depleted. This is why you see that the cost base of LTHs remains somewhat stagnant during explosive bull markets, while the cost base of STHs (many of which are new market participants) is exploding higher – there is no simply not enough parts to meet the new demand. Thus, “the number increases”.
Looking at the metric recently, with a price recently falling below the short-term holders’ cost base, their cost base is decreasing, and therefore the metric is barely increasing.
The base bitcoin LTH: STH cost ratio is barely increasing.
This is happening as some recent market participants capitulate and suffer chain losses. A downtrend will resume once the price recovers the base cost of short-term holders ($ 52,495), or the aging of coins in the cohort of long-term holders causes their base cost to increase. respective to that of short-term holders.
Final remark
The centuries-old trend of global bitcoin adoption will continue. Despite various macroeconomic uncertainties heading into 2021, there is never a bad time to increase your share of the world’s strongest monetary system. Consolidation to end 2021 is the most likely scenario.
The seated stackers rejoice.
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