Bitcoin Is Rising. How Historically Tight Token Supply Supports More Gains.

Bitcoin has outperformed the

Dow Jones Industrial Average

and

S&P 500

on the back of mostly crypto-native catalysts, though hopes that the Federal Reserve has finished raising interest rates recently have been supportive of all risk-sensitive assets. 

In particular, crypto bulls remain hopeful that regulators will soon approve a spot Bitcoin exchange-traded fund (ETF), which would be expected to usher in a new wave of investor interest. Geopolitical risks from conflict in the Middle East also has sparked another round of calls for Bitcoin as “digital gold,” with evidence that traders have moved into crypto as a haven play.

With analysts seeing longer-term support for Bitcoin in focus is a shift in tokens to long-term holders less willing to part with their digital assets, which could set the crypto market up for tight supply at a time when prices have momentum to keep rising. Adding to tight supply dynamics are expectations of Bitcoin’s so-called halving next year, which will reduce the issuance of tokens going forward.

The supply of Bitcoins among long-term holders is just shy of an all-time high, according to analysts at crypto market research group Glassnode, with short-term holder supply effectively at all-time lows.

“This insightful dynamic demonstrates a growing tightness within the Bitcoin supply, as existing holders become increasingly unwilling to part with their holdings,” analysts at Glassnode wrote in a recent note. “The Bitcoin supply is historically tight with many supply metrics describing ‘coin inactivity’ reaching multi-year, and even all-time highs. This suggests that the Bitcoin supply is extremely tightly held, which is impressive given the strong price performance year-to-date.”

“With the halving expected in April, and positive momentum around a spot ETF in the U.S., the coming months are shaping up to be exciting ones for Bitcoin investors.” they added.

Beyond Bitcoin,

Ether

—the second-largest crypto—was less than 1% higher at $1,880. Smaller tokens or altcoins continued to outperform, with

Cardano

climbing 4% and

Polygon

popping 9%. Memecoins were more muted, with

Dogecoin

up 2% and

Shiba Inu

advancing 1%.

Write to Jack Denton at jack.denton@barrons.com