Bitcoin’s volatility has significantly decreased as new liquidity fails to enter the market. However, on-chain data reveals several reasons why BTC investors continue to hold onto their assets.
Bitcoin’s price has been consolidating within a narrow range, experiencing only a slight 3.4% price fluctuation on a weekly basis. This consolidation has led some analysts to believe that BTC is stuck, while others anticipate a forthcoming increase in volatility. Despite this lack of price action, long-term hodlers remain steadfast in their conviction, and although new liquidity is trickling in slowly, Bitcoin has still outperformed many other assets in 2023.
A recent report by Glassnode highlights key indicators derived from on-chain data that shed light on Bitcoin’s price behavior.
One notable observation is that Bitcoin’s liquidity in terms of realized value remains cyclically low. This could be attributed to many investors reaching the breakeven point near the current Bitcoin price. In fact, the market still holds approximately 9% of unrealized profits.
Although the number of transactions has risen due to text-based ordinals, the overall volume of Bitcoin remains muted. This lack of liquidity accentuates the accumulation strategy among Bitcoin investors, even in the presence of unrealized profits, indicating a solidification of sentiment among long-term holders. On-chain transfer volumes for Bitcoin are currently below $4 billion, significantly lower than the all-time high of over $13 billion.
Given the minimal unrealized profits and the scarcity of liquidity, hodlers have little incentive to sell their holdings.
Furthermore, experienced Bitcoin hodlers who accumulated during the significant price drop in May 2021, which saw Bitcoin’s value plummet from $56,000 to $29,000, have seen their wealth increase. Although these buyers are currently underwater in terms of profit, their wealth has expanded compared to other groups. Specifically, the accumulation group from May 2021 has witnessed a 25% increase in wealth, while hodlers from the 6-month to 2-year range are currently at a loss.
These seasoned hodlers have endured previous market cycles and have developed strong conviction, allowing them to enhance their wealth relative to those with weaker hands who are exiting the market.
It is worth noting that analysts remain concerned about the potential impact of a U.S. debt default on BTC price. Despite Bitcoin’s usual correlation with macro markets, it has performed better than equities since the regional bank run in the United States.