Definition. The Long-Term Holder Market Inflation Rate is a measure of annualised accumulation or distribution rates by the LTH cohort over and above daily issuance to miners. The chart shows the nominal inflation rate from miner issuance (yellow) and the LTH Market Inflation Rate (green) alongside price; the intermediate LTH accumulation rate (blue) is included but hidden by default.

Technical. The construction proceeds in three steps:

• Nominal Inflation Rate = diff(Supply, 1) x 365 / Supply (yellow) — Bitcoin issuance to miners relative to circulating supply, assumed to be a persistent sell-side pressure and positive to indicate so.
• LTH Accumulation Rate = -1 x sma(diff(LTH Supply, 1) x 365, 365) / Supply (blue, hidden) — the annualised daily change in Long-Term Holder supply relative to circulating supply, multiplied by negative 1 such that LTH accumulation returns a negative rate (bullish signal), whilst LTH divestment returns a positive rate (bearish signal).
• LTH Market Inflation Rate = Nominal Inflation Rate + LTH Accumulation Rate (green)

Interpretation. 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.

Notes. First published by Glassnode in collaboration with David Puell (Ark Invest) in The Week On-chain, Week 11, 2022. Built from Circulating Supply and Long-Term Holder Supply.