Long-term Bitcoin investors preserved their holdings in recent weeks even as speculators fled the market, driving the cryptocurrency below $20,000, according to crypto exchange Coinbase.
"Recent BTC selling has been carried out almost exclusively by short-term speculators," David Duong, head of institutional research at Coinbase, said in the monthly outlook published Tuesday.
The persistent holding by investors is perhaps a sign of confidence that the cryptocurrency would survive in what appears to be a Federal Reserve-induced bear market and eventually thrive as a fiat alternative or digital gold.
Duong called Bitcoin ownership retention by investors a positive sentiment indicator, ensuring demand-supply balance in the face of speculator selling, which is a common feature of a bear market.
On-chain data tracked by Coinbase Analytics shows investors now hold about 77% of the total bitcoin supply of 21 million. While the number is off slightly from the early January high of 80%, it is still well above the peak of 60% observed during the height of the late 2017 bull run. The data show a significant amount of wealth has been distributed from speculators or traders to investor in 3.5 years.
The report titled "The Elusive Bottom" defines long-term investors as wallets holding the cryptocurrency for at least six months.
Speculators are typically sophisticated participants or retail traders who purchase assets for short periods and employ strategies to profit from short-term price gyrations. Speculators and traders are more sensitive to macroeconomic factors like changes in the Fed policy.
Bitcoin has more than halved to under $20,000 this year, predominantly due to the Fed's decision to withdraw liquidity to combat high inflation.
The liquidity exodus has exposed faulty risk management practices in the crypto ecosystem, forcing many trading firms and miners – those responsible for minting coins – to offload their holdings to stay solvent. Three Arrows Capital, which boasted billions of dollars in assets under management earlier this year, recently went insolvent. The fund's bankruptcy has hit several prominent crypto firms, including lending platform Voyager Digital and Celsius Network.
"Solvency concerns have forced an accumulation of realized losses, exposing vulnerabilities in other parts of the crypto ecosystem," Duong noted.
Bitcoin was trading near $19,680 at press time, down 0.5% in 24-hours, according to CoinDesk data.
