Surfing the HODL waves: a review of 2020

The year 2020 is over and forever imprinted on the Bitcoin blockchain. And while it was probably a very tumultuous year for the world – the COVID-19 virus, protests and riots in many cities and countries, lockdowns and quarantines, central banks printing money with Bitcoin Era increased force, contested US election results – if you take some distance from all that noise and look at the changing sentiment of Bitcoiners, this year seems… pretty ordinary.

HODL waves are a visualisation of onchain data in which the percentage of the total bitcoin supply and the length of time those coins have been „held“ at the last address are represented as coloured bars. This visualisation is possible because of the absolute transparency of the Bitcoin blockchain. You can read more about HODL waves here. From comparing the „age“ of the coins in the addresses to the current BTC to US dollar exchange rate, some interesting assumptions can be made about the Bitcoin economy and the sentiment of the hodlers.

The 2020 price collapse and the low point of the HODL cycle
Let’s look back at some of the highlights of 2020. With the exception of a wild 60% collapse and a rapid recovery in March 2020, the HODL waves for the year look exactly as one would expect from a young global currency, and bear quite a few similarities to both the 2011-2013 wave and the 2014-2017 wave.

Surfing the HODL waves: a look back at 2020The March drop was sharp, but the graph shows that the coins moved between addresses at that time had been stored at the last address for less than 6 months. And this suggests that the collapse was probably caused by traders liquidating open leveraged positions. Long-term holders were not affected by this move, which means that coins held at one address for more than 6 months began to make up a higher percentage of the total number of bitcoins held at addresses. This can also partly explain the rapid two-month recovery to previous price levels.

Long-term holdings of this cycle peaked on September 27, 2020, when 63.35% of the total bitcoin supply (~11.74 million BTC) had not changed addresses in over a year at $8251. The price ended the year at $29,000, while things began to change and the share of long-term held coins dropped to 59.03% by 31 December.

The 59.03% of bitcoins held for more than 1 year is still a far cry from the low point of the previous cycle, which was on 10 April 2018 at $6839/BTC (after rising from $172 in January 2015), when only 41% of available coins were held for 1 year or longer. If the 2018-2020 HODL wave is anything like the previous one, we can expect more extreme price moves as new entrants try to recoup that ~18% difference between 59.03% and 41.1% of long-term bitcoins held.

November 2018 capitulation forges ’steel hands‘
Surfing the HODL waves: a look at 2020A little zooming out to look at the 2018-2020 HODL wave in its entirety, we can see that the 2018 capitulation, when the BTC price fell from ~$6000 to cycle lows around $3,200, came from a significant percentage of the 3-5 year streak. 2.43% of all bitcoins, or about 423,000 coins, were moved after being at the same address for 3-5 years, and shorter-term coins were moved during the price collapse.

The vast majority of bitcoins liquidated in November 2018 were purchased and held by long-term holders, which the chart shows emerged in late 2020, when the 2-3 year holding streak expanded by 3.4% or about 630,000 bitcoins. The November 2018 sell-off was the last surrender of the 2017 bull market to ~$20,000.

Conclusion
January 2021 is already off to a wild start and at the time of writing the price has soared to $40,000/BTC, which is consistent with historical bitcoin price movements versus hodler sentiment at the time. Each block is every 10 minutes, time marches on and Bitcoin continues to perform as intended, but people’s understanding and demand for BTC is constantly fluctuating.

Bitcoin continues to make history during its monetisation.

Thanks to my friends at Glassnode Studio for supporting the HODL-wave visualisation. I anticipate a bright 2021 and beyond for bitcoin.