By Tom Blitzer
Key Insights:
- Third Bitcoin halving reshaped HODL behavior, dividing Bitcoin supply into Short-Term and Long-Term holders.
- The ‘HODL model hypothesis’ emerged post-halving, hinting at an era where Bitcoin’s illiquid supply surpasses new supply.
- The increasing scarcity of Bitcoin may disrupt the notion of diminishing returns, driving its value upward.
The narrative surrounding Bitcoin’s scarcity took a remarkable turn with the advent of the third halving event on May 11, 2020. This historical event reshaped the dynamics of Bitcoin supply, thus marking a turning point for HODL (Hold on for Dear Life) behavior.
Assessing HODL Behavior Post Bitcoin’s Third Halving
The analysis of HODL behavior revolves around evaluating coin age and spending habits. The report disclosed that after a holding period of five months, Bitcoins are less likely to be sold unless triggered by a significant price upsurge. Consequently, this five-month threshold allows the division of Bitcoin supply into Short-Term Holders (STH) and Long-Term Holders (LTH).
Moreover, another intriguing method scrutinizes spending habits instead of time. Bitcoin entities retaining more than 75% of their holdings are termed illiquid, while those divesting over 25% are considered liquid, regardless of the ownership duration.
Long-Term Holders and Illiquid Supply: The Measures of HODL Behavior
Significantly, both LTH supply and illiquid supply function as the key indicators for HODL behavior. The former is highly susceptible to price changes, while the latter provides a stable representation.
In a dramatic price rise, LTHs typically sell a portion of their holdings, impacting LTH supply but not the illiquid supply. This discrepancy arises as new investors entering the market during price spikes compensate for the reduced illiquid supply, maintaining a steady signal.
The Emergence of the HODL Model Hypothesis
Additionally, the accelerated growth of illiquid supply and the plateauing circulating supply post-halving events led to an intriguing observation. The report suggests that the growth of the illiquid supply may eventually outstrip new supply issuance, paving the way for the “HODL model hypothesis.” This theory posits that the third halving marked a turning point, with Bitcoin’s illiquid supply growth surpassing the rate of new supply issuance.
Hence, this shift signals a transition from Bitcoin’s abundance to an era of increasing scarcity. This growing scarcity has the potential to challenge the theory of diminishing returns, promising higher future returns. However, the increasing market capitalization could exert downward pressure on the prices, fostering a likelihood of diminishing returns. Conversely, the scarcity factor propels upward pressure on Bitcoin’s value.
This shift towards digital scarcity post the third Bitcoin halving underscores the groundbreaking nature of Bitcoin’s invention. However, whether scarcity will dominate or other forces will come into play, the true course of this premier cryptocurrency remains to be seen.
Notably, cryptocurrency experts advised investors last month to stock up on altcoins, anticipating the forthcoming Bitcoin halving. Past data from the halvings in 2012, 2016, and 2020 consistently signals bull runs, catapulting Bitcoin to record-high prices.