Delphi Digital released new data which shows that the amount of Bitcoin (BTC) being held is highly correlated to the price of Bitcoin (BTC) on long term charts, and lagging as well as leading indicators for the Bitcoin (BTC) market could possibly be formulated from this correlation.Source: Delphi Digital
Essentially, Delph Digital aggregates the amount of unspent transaction outputs (UTXO) that have been held for more than 1 year, held for more than 2 years, held for 5 years, as well as UTXO which have been held for between 1 and 2 years, held for between 2 and 3 years, and held for between 3 and 5 years. Overlayed on the chart is Bitcoin’s (BTC) price in logarithmic format, with price beaks and bottoms marked, as well as UTXO peaks and floors being marked for coins which have been held more than 1 year.
It can be seen that after every Bitcoin (BTC) price peak the amount of UTXO which are more than 1 year old reaches a minimum, meaning that people who HODL generally sell off the most Bitcoin (BTC) during the time before and after a price peak. Therefore, UTXO minimums can be considered lagging indicators that a price peak has already happened. Likewise, UTXO maximums can be a lagging indicator of the bear market low. Although lagging indicators are not useful for predicting future market movements, they can be useful for confirming market trends.
Also, in recent years it can be seen that HODLING increases as the price of Bitcoin (BTC) drops, and continues to increase as the price of Bitcoin (BTC) begins to steadily rise off of a bear market low. This represents people buying and holding Bitcoin (BTC) as the price approaches the bear market low, and buying and holding even more Bitcoin (BTC) as fear of missing out (FOMO) kicks in during the early stages of the next bull run.
Fundamentally, the increase in HODLING as a bear market low approaches is a force which helps stabilize the market, and eventually brings a reversal in trend.
It seems a steady rise in the Bitcoin (BTC) that has been held for more than 1 year can be a leading indicator for both the formation of a bear market low in the near future, as well as a leading indicator for the subsequent rally. For example. The amount of Bitcoin (BTC) held for more than 1 year increased by 20% from early 2018 through early 2019, ultimately leading to the formation of a bear market low and then the mini-bull run in the summer of 2019.
Simultaneously, when the rate of HODLING significantly drops, like in the latter half of 2017, it could be used as a leading indicator that Bitcoin (BTC) will reach a price peak in the near future. Indeed, the amount of coins held for more than 1 year began to drop substantially right before the mini-bull run this summer hit its peak.
Perhaps an even stronger leading indicator is the amount of coins held for between 1 and 2 years. When the amount of coins held for 1-2 years is falling at a significant rate it indicates that a Bitcoin (BTC) price peak will happen in the medium term, at least based on data from recent years. In-fact, when the amount of coins held for 1-2 years stabilizes that is seemingly when the price peak is reached.
Notably, the amount of coins held for between 1-2 years is continuing to fall at a substantial rate, suggesting that another price peak may happen for Bitcoin (BTC) in 2020.
Thus, trends in the amount of coins being HODLED for 1 year and for between 1-2 years can be used as lagging indicators to confirm a market trend, and perhaps as leading indicators to predict future market movements. That being said, due to the relatively young age of Bitcoin (BTC) the size of this dataset is limited, so the leading and lagging indicators proposed in this article are theory and not fact.