Bitcoin Supply Shock

One thing that separates crypto from the stock market is the transparent on chain metrics. On chain metrics are there for all to see, the on-chain data for Bitcoin is far more bullish than the current sentiment reveals.

Market Manipulation

After the September flash crash, the crypto space was conveniently flooded with fear, uncertainty, and doubt (FUD). Timed perfectly with the official launch of Bitcoin in El Salvador, the crash came with bearish news all around. This perfect timing is awfully suspicious and heavily learning towards market manipulation. Nearly hours after El Salvador purchased their first BTC, articles regarding the SEC cracking down on Coinbase began to circulate. Elizabeth Warren could be seen referring to crypto as “Shadow Banks”, fudding the market. This behavior is all too common in any market, we saw Morgan Stanley spreading negative sentiment most of the year, however they just launched a Crypto Research Team[1]. They also began offering Bitocoin fund access to their wealthiest clients in March, they also purchased 240million dollars in Grayscale’s Bitcoin Trust on the stock market. While all this FUD was going on, large institutions were buying the dip taking money from newer investors who panic sell their Bitcoin.


The stock-to-flow model above has been a reliable indicator of when BTC can be purchased at a relative discount on the long-term. This model is generally used for commodities such as Gold or Silver since they have a limited supply. This ratio is driven upward by long-term holders not selling, adding to scarcity. Noted in the chart, all the purple phases are Bitcoin halving moments, when Bitcoin is mined at half the rate, reducing supply to exchanges. One can note that purple phases are generally when Bitcoin is the lowest on the trend line before big uptrends, these are the market bottoms before explosive upward price action. Buying when we are below this stock-to-flow line presents a relatively good price in the long run. As the market heats up, and time goes on, the high points in the chart are generally red, orange, or yellow[2]. We can see that these rises present generally worse buying opportunities for the long-term.

Bitcoin Wallets Increasing

Above we can see that as the price of BTC has risen, so to has the number of wallets holding 1 BTC or more. We can see that despite the FUD and market crash, which is all to common, more and more people are holding BTC. This number is based on unique addresses, yes people can have more than one wallet, but it is mostly large holders who have several.

Another metric we can use is the 1 year plus HODL Wave chart, this chart shows the percentage of BTC holders that hold onto their BTC for greater than 1 year. Overall, the number of 1 year + holders is going up, this is reducing the available supply. On the same note, we see profit taking during big price spikes, the % of 1-year holders drops. Profit taking is a normal part of the process, sell pressure goes up as the price skyrockets. This metric added with the increased number of wallets in general creates less supply on exchanges.

Supply Shock

When we add increasing number of wallets, increasing long term holders, increasing difficulty of mining (Bitcoin Halving) the BTC available is drastically decreased. When you go to buy BTC on an exchange and the exchange only carries a small amount, buy orders will stack on top of each other as demand increases. This is what drives the price up in percentages on the exchanges. We are seeing record numbers of long-term holders. With all of this said, we are Bullish on crypto despite the FUD and market manipulation. The beauty of Bitcoin is that on chain metrics are there for all to see, we are seeing mass adoption, institutional interest, and government usage (El Salvador). It is only a matter of time until a catalyst arrives that excites the market, there will not be enough BTC to go around, this will pump the price. This same idea applies to all cryptos that are either deflationary, or have a supply-cap, one great example of another crypto we hold that will experience a supply shock is Cardano.



Patrick O’Neil

About Patrick O’Neil


Patrick is an avid technology and gaming enthusiast. Patrick taught himself how to assemble computers in 2010 and was always fascinated with the gaming market. In 2019 he decided to sell his grayscale Ethereum funds and dive into the world of crypto firsthand. 

Learn More