Understanding Bitcoin investor behavior requires more than price charts—it demands on-chain analysis that distinguishes between two fundamental market participants: Long-Term Holders (LTH) and Short-Term Holders (STH). These groups represent distinct philosophies in the crypto ecosystem: one focused on enduring value, the other on tactical trading.
Long-Term Holders, often referred to as "investors" or "HODLers," operate with low time preference. Their strategy is rooted in conviction—believing Bitcoin will appreciate over years, not days. They typically hold through volatility, only reducing positions during bull markets to take profits. In contrast, Short-Term Holders ("traders") aim to capitalize on price swings, frequently buying and selling to outperform the market.
But how do we quantify these behaviors? And what can they tell us about the current state of the Bitcoin market?
This article introduces a refined methodology for measuring Bitcoin supply distribution between LTH and STH, along with key on-chain metrics that reveal whether each group is in profit or loss—offering deep insights into market sentiment and cycle phases.
Classifying Long-Term vs. Short-Term Holders
To differentiate between investor types, we analyze Bitcoin entities—wallet clusters representing real users—rather than individual Unspent Transaction Outputs (UTXOs). The foundation of our classification lies in a critical threshold: 155 days.
This figure was derived from historical UTXO spending probability data, where the likelihood of a coin being spent begins to plateau after 155 days. Coins held beyond this point are far less likely to move, signaling long-term commitment.
However, instead of using a rigid cutoff, we apply a logistic weighting function centered at 155 days with a 10-day transition window. This smooth curve avoids artificial spikes when entities cross the threshold abruptly. For example:
- At exactly 155 days, an entity’s balance contributes 50% to LTH and 50% to STH.
- By around 177 days, approximately 90% of the balance is attributed to LTH supply.
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This continuous transition results in more stable, noise-resistant metrics—essential for accurate trend analysis.
Note: To improve accuracy and reflect true holder behavior, Bitcoin held on exchanges is excluded from this analysis, as exchange balances often represent custodial or trading activity rather than personal investment.
Long-Term Holder (LTH) Supply Trends
As of now, 12.3 million BTC—about 66% of the circulating supply—is classified as Long-Term Holder supply.
Historically, LTH supply follows a cyclical pattern:
- It grows steadily during bear markets, indicating accumulation.
- It declines during bull runs, reflecting profit-taking.
The current downward trend in LTH supply suggests we may be entering the early stages of a new bull market—a familiar pattern seen in prior cycles.
To better understand behavioral shifts, we examine the Long-Term Holder Net Position Change, which tracks 30-day changes in LTH-held BTC. This metric filters out lost or dormant coins, focusing only on active movement.
A recent downward spike indicates that long-stored BTC is re-entering circulation—likely due to rising prices triggering profit realization. This movement aligns with early bull market dynamics observed in past cycles.
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Short-Term Holder (STH) Supply Behavior
Short-Term Holder supply currently stands at 3.7 million BTC, or roughly 20% of total supply (excluding exchange-held coins).
Unlike LTH supply, STH holdings tend to increase during price rallies. This reflects renewed trading activity—often from investors reactivating old wallets or new entrants buying into momentum.
The past month alone has seen over 500,000 BTC shift into STH wallets, underscoring growing market participation and speculative interest.
This surge is typical in advancing bull markets: as confidence builds, traders accumulate positions, increasing the proportion of recently moved coins.
Are Long-Term and Short-Term Holders in Profit?
By analyzing both the average purchase date and average cost basis of each entity, we can determine whether LTH and STH supplies are in profit or loss.
Currently:
- ~97% of LTH-held BTC (12M BTC) is in profit.
- ~97% of STH-held BTC (3.5M BTC) is also in profit.
This near-universal profitability signals strong market health and widespread confidence across investor classes.
During bull markets, it's expected that most long-term holders are profitable—especially those who bought during previous bear cycles. However, periods of loss do occur.
For instance, the “Valley of Loss” beginning in mid-2018 captured investors who bought near the 2017 peak and endured a prolonged downturn. Many transitioned into LTH status while underwater. Today, even those holders have returned to profitability—a powerful indicator of market recovery and positive sentiment.
How This Methodology Improves on Past Metrics
Previous models like Adamant Capital’s Hodler Net Position Change offered valuable insights but had limitations. One major issue: capped positive values due to reliance on the “Liveliness” metric, which inherently delays recognition of large sell-offs.
Our updated approach—based directly on LTH supply dynamics—is unbounded in both directions, offering clearer, timelier signals. As shown in comparative data:
- Traditional metrics underrepresent rapid shifts in holder behavior.
- Our model captures sharp declines in LTH supply immediately, providing earlier warnings of market transitions.
This enhanced sensitivity makes it a superior tool for identifying turning points in investor sentiment.
FAQ: Understanding Bitcoin Holder Behavior
Q: What defines a Long-Term Holder?
A: An entity whose average Bitcoin holding duration exceeds 155 days. We use a smooth logistic function to gradually transition from STH to LTH status for more accurate tracking.
Q: Why exclude exchange-held Bitcoin?
A: Exchange wallets don’t reflect individual investment behavior. Including them would distort the data with high-turnover trading balances rather than genuine holding patterns.
Q: How does LTH supply help predict market cycles?
A: Rising LTH supply indicates accumulation (bear market), while declining supply suggests profit-taking (bull market). Current drops point to early-stage bull dynamics.
Q: Can most holders really be in profit?
A: Yes—especially after significant price rallies. With ~97% of both LTH and STH supply in profit, it reflects broad-based gains across old and new investors alike.
Q: What causes sudden drops in LTH supply?
A: Major price increases often trigger long-term holders to sell portions of their holdings. This is normal profit-taking behavior and typically precedes further bullish momentum.
Conclusion
By refining the way we classify Bitcoin holders and tracking their supply distribution, we gain powerful insight into market psychology and cycle progression.
Key findings:
- 66% of Bitcoin is held by long-term investors, showing strong confidence in BTC as a store of value.
- Recent declines in LTH supply and rising STH balances suggest the early phase of a bull market.
- Nearly all holders—both long- and short-term—are now in profit, reinforcing positive sentiment.
These on-chain metrics serve not just as historical records but as forward-looking indicators. When combined with price action and macro trends, they empower investors to make informed decisions grounded in real network behavior.
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