HODL Waves Indicator Revisited: What It Says About Bitcoin’s Market Cycle
Is the Bitcoin Market Cycle Ending | Credit: Derek Fenech
Key Takeaways
- The HODL Wave indicator shows the age of Bitcoin (BTC) transacting on-chain.
- Historically, conditions dominated by short-term traders have signified a top.
- How can we analyze the indicator to predict the current BTC market cycle?
Throughout its price history, BTC market cycles have resembled each other differently. The most common one is that Bitcoin follows 4-year cycle charts.
Regarding participants in the market, short-term holders take most of the supply from long-term ones during market cycle tops. This happened in 2017 and 2021, as the HODL wave indicator noted.
Let’s analyze the indicator and attempt to determine if it shows similar readings to previous cycle tops and, if not, how much longer until it does.
What Is the HODL Waves Indicator?
Since Bitcoin uses the Unspent Transaction Output (UTXO) accounting method, its age is when it last moved in a transaction instead of when it was first mined. The HODL Waves indicator was created to visualize the age of Bitcoin’s UTXOs.
The indicator differentiates between short-term (warm colors) and long-term (light colors) holders by using differently colored bands.
In our previous analysis regarding HODL waves, we determined that Bitcoin market cycle tops happen when short-term holders dominate the activity. Historically, over 70% of the BTC had moved in the past three months during each of the previous two market cycle tops.
These highs have been combined with a decline in the 1-5 years bands, which fell to less than 10%.
In more general terms, this means that speculators dominate the market while long-term holders, usually with strong convictions, have sold their positions.
Current Readings
In the current market cycle, the short-term bands up to three months peaked at 43% in April. They have steadily declined since. So, the top was considerably lower than that of 2017 and 2021.
When accounting for the time after the BTC bottom, the reading is more similar to that of July 2016 and Aug. 2019 (black circles), which were temporary tops before the upward trend resumed.
The 1-5-year-old bands arrive at the same conclusion since they are also not behaving as they did in the previous market cycle top. The combination of these three bands is 33%, much higher than the 2% in 2018 and the 8% in 2021.
Also, the bands have not decreased in the last three months; they have stood constant.
An interesting development is the swelling of the 6 to 12-month band (light orange) since July. This is likely a result of the matching decline in the 3-6 month band (orange).
The reading suggests those who bought near the yearly high in January-March 2024, nearing, did not sell. Rather, they held and graduated into the 3-6 month band.
In previous cycles, a similar movement occurred in the run-up to the all-time high. If history repeats, another increase will lead to a new all-time high before the market cycle ends.
BTC Market Cycle Likely Not Over
The allocation between short- and long-term holders does not indicate a BTC market cycle top. Rather, another upward movement could happen, which causes 1-5-year holders to offlead their BTC to short-term participants, marking the end of the current cycle.
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