The relatively modest trading volume of #Bitcoin can be comprehended through a detailed analysis of market participant behaviors. On-chain users can be classified into Long-Term Holders (LTH) and Short-Term Holders (STH) based on spending habits and coin movement patterns, aligned with observed time preferences. Long-Term Holders, holding coins for months to years, often keep them dormant for over 155 days. In contrast, Short-Term Holders include active traders and newcomers, with coins aged below 155 days exhibiting higher spending rates. Historically, coins dormant for 155 days rarely change hands, differentiating Long-Term and Short-Term Holders. The graph displays short-term and long-term holdings' supply, reflecting liquidity and supply categories. Liquidity segregates into liquid and illiquid supply. Liquid supply involves tradable Bitcoin, owned by responsive traders. High liquid supply signifies easily tradable Bitcoin, fostering market stability. Illiquid supply comprises coins held by less active traders, demonstrating reduced trading reactivity. Implications: - Decreasing liquid supply (increasing illiquid supply) reduces trading volume due to fewer coins for immediate transactions, enhancing price stability. - Increasing liquid supply (decreasing illiquid supply) raises trading volume, amplifying price volatility through heightened market responsiveness. Understanding these dynamics is pivotal for accurate market analysis.
Written by onchained
