Key Takeaways

  • Bitcoin’s price has reached $42,000, a new all-time high.
  • Bitcoin is currently at the 2019 top concerning its “dormancy ratio,” as old hands move BTC to book profits. 
  • The cryptocurrency is facing a supply crunch as long-term hodlers wait patiently for higher prices. 

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Bitcoin’s price has reached a new all-time high of $42,000. The unprecedented rise is backed by strong holders and new buyers, but the market is starting to witness bull exhaustion.

Bitcoin Price Is Ruled by Supply

The supply of Bitcoin has been constrained strongly since the COVID-19-related market crash in March 2020.

According to research from Glassnode, “78% of the circulating Bitcoin supply is considered illiquid.” The firm’s analysts say that this means that investors are holding onto their Bitcoin tightly, and that low liquidity could create a “supply-side crisis.”

Elsewhere, Philip Gradwell, the Chief Economist at Chainalysis has stated that Bitcoin is above $41,000 because “new investors keep buying but now have to buy from long term investors, who need high prices to sell.” He adds that the supply curve is “now very steep.”

As a result of these trends, the Bitcoin network is now starting to witness profit-booking from old wallets.

Coin Days Destroyed Is High

A metric called coin days destroyed (CDD) measures the movement of Bitcoin based on the time it was last moved from an address. The total CDD rises when old hands move their Bitcoin on-chain.

According to Glassnode, the weekly average Bitcoin CDD has been on the rise since October.

Bitcoin coin days destroyed (CDD) weekly average. Source: Glassnode

The 2017 bull market maintained a high CDD before the market reached its peak in December. Since mid-November, old investors have sold $1 million BTC to new investors, according to Gradwell.

Nevertheless, the volume of coins moved on-chain has also increased considerably, projecting strong liquidity of the market.

Dormancy Flow Is Lower

The comparatively low dormancy flow, which measures the ratio between CDD and on-chain volume, is proof that sellers still haven’t reached 2017 levels concerning on-chain volume.

Glassnode, via Twitter

The ratio, however, has reached the 2019 top, suggesting that the bulls face a lot of resistance at this point. Between Q4 2020 and today, Bitcoin has seen inflow from outside of the crypto world, suggested by the limited stablecoin inflow to exchanges.

Hence, as Bitcoin continues to gain traction from new entrants, the high expectations of the illiquid supply of the market, probably in the $50-100k region, is pushing prices higher.

At the time of writing the author held BTC and less than $15 of altcoins.

Shutterstock cover photo by WhiteBarbie

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