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Bitcoin and Ethereum: Is there a supply squeeze in the making

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The market’s top two cryptos have been moving independently of late. While Bitcoin’s path saw a lot of consolidation, Ethereum has been going up on the charts over the past week. As both Bitcoin and Ethereum holders looked reluctant to sell-off at a crucial time amid anticipation of a price rise, on-chain metrics offered an interesting insight into the larger market sentiment. 

Some interesting divergences for both the top coins’ metrics posed a complex question – Whether the same were projecting bullish or bearish divergences? However, supply dynamics for BTC and ETH have been flashing both bearish and bullish signals. Ergo, it is important to weigh the same against the market sentiment to get a clearer picture of the future. 

A strong trend for bulls 

An observation of the accumulation and HODLing patterns allows better visualization of the long-term picture. The same revealed that the current activity on both Bitcoin and Ethereum is similar to the stable pre-bull accumulation range established in mid to late 2020. Despite the prices returning to higher trading ranges, the demand for block space on both Bitcoin and Ethereum has been well below recent peaks.

A Glassnode report also found that active entities on the Bitcoin network were around 275k per day, around 35% below the January peak. The same for Ethereum was down 33% from its May peak, sitting at around 450k addresses per day. 

A decline in the young coin HODL waves for both Bitcoin and Ethereum seemed indicative that the market is preferring to HODL and not to spend. Young BTC represented only 15% of the coin supply and saw a very strong downtrend. For Ethereum, young coins trended down towards the long-term low of 12.5% of the circulating supply.

Further, a climbing proportion of middle-aged coins for both ETH and BTC suggested an increasing illiquid supply.

Adoption, interest, accumulation, and HODLing

Both Bitcoin and Ethereum have seen a downtrend in liveliness since June. This suggested less spending and more coin dormancy (coin maturity was building up). Liveliness maps out whether more coin days are accumulated (HODLing) or destroyed (spending) by the total coin supply. 

Bitcoin Entity-Adjusted Liveliness; Source: Glassnode

Now, even though accumulation has been visible since May, a more spot-on signal of adoption, interest, accumulation, and HODLing is the steady growth in non-zero balances.

Bitcoin’s non-zero addresses, for instance, have been on a steady uptrend since July. They were more than 38 million and heading towards an ATH. 

BTC Non-zero Addresses; Source: Glassnode

Ethereum also made a new all-time high of 60.7 million addresses with a non-zero balance. Even though the divergence between price and on-chain activity is historically abnormal for a full-scale bull market, it’s not an uncommon sign for the pre-bull and pre-supply-squeeze dynamic. 

ETH Non-zero Addresses; Source: Glassnode

Supply dynamics for the top two cryptos suggested that an extremely robust underlying demand was present in the market. This could be pretty constructive for the prices if the trend continues.


Varuni is a full-time journalist with AMBCrypto. She is interested in covering the socio-political aspects of U.S and South-Asian crypto markets. She is a post-graduate in mass communication with a specialization in Journalism and she has a keen eye for market trends.
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