Author: Crypto Compound, Translated by Shaw Jinse Finance
The Bitcoin market is at a rare stage: On-chain data, holder behavior, and institutional capital flows are all showing a trend that points to a strong upward trend for Bitcoin over the coming year. While price alone only tells a partial story, on-chain metrics provide insight into holder confidence, supply dynamics, and the real-time fundamentals driving the asset.
Let's analyze what's happening, holders' stance, and why the bullish case for the next 12 months is stronger than most people realize.
The Current State of Bitcoin on the Chain
If you look beyond the noise of daily headlines and short-term fluctuations, the Bitcoin network itself demonstrates remarkable strength. Illiquid Supply Reaches All-Time High: Approximately 72% of Bitcoin's circulating supply currently resides in wallets with little to no transaction history. This equates to over 14 million Bitcoins effectively "off the market." Each new rally must compete with a shrinking supply of tradable supply, amplifying any surge in demand. Realized Market Cap Reaches All-Time High: Realized market capitalization (the total value of all tokens based on their last traded price) has surpassed $1 trillion. This indicates that more capital is entering and remaining in the network than at any time in history. Investors are buying at higher prices and not selling. Exchange Balances Continue to Decline: Exchange reserves are near multi-year lows. This means that the amount of cryptocurrency available for sale at the click of a button is decreasing. Historically, low exchange balances have often signaled tight supply, as self-custodied cryptocurrency is typically held for longer periods. Hashrate and Difficulty Reach All-Time Highs: Mining difficulty has climbed to all-time highs, and hashrate continues to break new records. This demonstrates miners' long-term trust in the network, investing heavily in hardware and infrastructure to secure it. This reflects the network's resilience, not its fragility. The overall picture is simple: supply is constrained, confidence is high, and the network itself has never been stronger. Holder Behavior: Who's Selling and Who's Holding On? One of the most powerful features of Bitcoin's on-chain data is its ability to differentiate market participants based on their holding timeframe. Short-Term Holders (STH): Those who have held cryptocurrency for fewer than 155 days. Historically, they have been most prone to panic selling or late-stage buying. Recent data shows that STH has been selling at a loss during market pullbacks—typical behavior of weak holders. They have been marginal sellers during periods of market volatility. Long-term holders (LTH): These tokens have been held for more than 155 days and remain the backbone of the network. The supply of LTH is at or near all-time highs. The longer tokens are held, the less likely they are to be transferred. Even throughout the summer's price volatility, LTH continued to accumulate, with only selective profit-taking at local highs. It's not just distribution that's important here, but also absorption. When short-term holders panic sell, the market seeks out willing long-term holders to take over these tokens. This is the transfer of supply from weak to strong holders—the foundation of every bull market. Demand Side: Institutions and ETFs On the demand side, two factors dominate: US spot exchange-traded fund (ETF) flows and institutional holdings. ETF Inflows: After a period of weakness in early summer, inflows into US Bitcoin ETFs have accelerated again, with some days bringing in over $500 million in net new demand. Importantly, these flows tend to cluster—strengthening multiple consecutive trading days creates sustained buying pressure. Institutional Holdings: Futures open interest and custody reports indicate that the primary driver of this rally isn't leverage or retail enthusiasm, but rather stable institutional allocations. This demand tends to be more "sticky." These investors aren't day traders, but rather portfolio managers who view Bitcoin as a macro asset and a hedge against long-term currency devaluation. In short: supply is tight, while professional demand is stable. This combination is rare and powerful. The Bullish Case for the Next 12 Months So why do all these factors add up to a bullish outlook? Here are six core pillars: Structural Supply Tightness With illiquid supply at record levels and tight exchange balances, any increase in demand is constrained by supply constraints. ETFs are consistently adding hundreds of millions of dollars each week. This is a classic case of a supply crunch. Rising Realized Market Cap With realized market cap exceeding $1 trillion, it reflects "sticky" demand at higher prices. Historically, every time this indicator reaches a new high, it sets the stage for higher market prices, as it signals that funds are less likely to sell at a loss. On-chain risk remains moderate. Indicators such as the MVRV z-score (a benchmark comparing current market prices to the average holder's cost of ownership), while elevated, are far from overheated. In past cycles, peaks have occurred when these signals reached extreme levels. We are not yet at that stage, and there is significant room for further gains. Miner confidence. Difficulty and hash rate are at historically high levels, suggesting that miners are expanding mining capacity even after the halving. Miners are long-term believers; they won't invest billions of dollars in infrastructure unless they anticipate future price increases. Seasonal Strength. Historically, the fourth quarter has been one of Bitcoin's strongest quarters, with many rallies beginning in September and accelerating towards the end of the year. This year's price action—setting a local low in early September—fits this pattern perfectly.
The Professional Flywheel
With every quarter that the ETF runs smoothly, more institutions gain confidence to allocate. Every new registered investment advisor (RIA) platform, family office, or corporate finance department that approves Bitcoin investment adds to the demand base. The longer this pattern runs smoothly, the stronger the flywheel becomes.
Risks to Watch
No bull run in the market is inevitable, and there are risks worth tracking.
Short-Term Holder Excess: Those who bought STH near its highs may continue to sell on rallies, creating a resistance zone that needs to be absorbed.
Macro Shocks: Major risk-off events in traditional markets could temporarily curb demand. Miner Pressure: If difficulty continues to rise while fees remain low, some miners may need to liquidate their assets. However, historically, the market has been able to absorb miner selling without shifting the trend. These are real risks, but unless they are combined with systemic demand weakness (which is not yet evident), neither will fundamentally derail the long-term trend. Key Investment Positioning Strategies: For investors, the message from on-chain data is clear: Capitalize on Pullbacks as Opportunities: When short-term holders abandon resistance and the SOPR (Realized Price Revenue Ratio) falls below 1, it typically signals a favorable accumulation zone. Keep a close eye on ETF flows: Sustained, multi-day inflows are a strong signal that institutions are actively buying. Track illiquid supply and realized market capitalization: Both metrics should continue to trend upward if the bull market remains intact. The priority should be to gradually build a position, respect volatility, and closely monitor fundamental indicators. In Summary: Bitcoin is at a confluence of supply dynamics, holder confidence, and institutional demand. Illiquid supply is at an all-time high. Realized market capitalization is at an all-time high. Exchange balances are scarce. ETFs are consistently buying. Miners continue to secure the network at unprecedented levels. Taking all of these factors into account, the most likely trend over the next 12 months is not sideways movement, but a significant price increase. Market volatility will continue—it always does. But the structural fundamentals of this market are stronger, deeper, and more resilient than at any point in Bitcoin's history.
For long-term investors, the message is simple: the bull market remains intact, and a major shift is likely over the next 12 months.
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