Metric Overview
The Long-Term Holder market inflation rate is a measure of annualised accumulation, or distribution rates over and above daily issuance to miners. It was first published by Glassnode in collaboration with David Puell (Ark Invest) in this newsletter.
First we consider Bitcoin issuance to miners relative to circulating supply as the nominal inflation rate (yellow trace). This is assumed to be a persistent sell-side pressure and is positive to indicate so.
Next we calculate the daily change in Long-Term Holder supply, annualised the result, and divide by circulating supply to measure market demand. We multiply the value by negative 1 such that LTH accumulation will return a negative rate (bullish signal), whilst LTH divestment will return a positive rate (bearish signal).
Finally, we add this LTH accumulation rate (blue trace) to the nominal inflation rate to calculate the market inflation rate (green trace).
User Guide
This metric carries the following interpretation:
Market inflation rate reflects the annualised rate of net accumulation (negative), or distribution (positive) over and above miner issuance. I.e. a value of 0.0% means LTHs are accumulating at a rate equal to miner issuance.
Higher Values indicate that LTHs are adding to sell-side pressure via divestment (shrinking LTH balance)
Lower values indicate that LTHs are accumulating at a rate greater than the natural sell-side by miner issuance.
During late stage bear markets, market inflation rates are deeply negative (available supply is deflationary), hitting -14% to -15%. This means LTHs are accumulating ~15% of the circulating supply per year over and above miner issuance.
At bull market tops, market inflation peaks above nominal inflation, indicating that LTHs are adding significantly to sell-side pressure via divestment (available supply is very inflationary). This ultimately leads to an oversupply and initiates a bear market.
It does not account for miners who may HODL their Bitcoin, all issuance is assumed to be natural sell-side activity for simplicity.
Coined By
Glassnode in collaboration with David Puell (Ark Invest), Mar 2022.