A research named ‘Bitcoin Data Science: Hodl Waves’ part one was launched by the co-founder of Unchained Capital, Dhruv Bansal. Unchained Capital is a digital currency-based firm that lends financial advice. The report was finalized after few years of analysis of BTC network’s ledger of Unspent Transaction Outputs (UTXO) which aimed to explore the reason for Bitcoin to lose its value. Its findings suggested that new investor and materialized distinct holding periods were the main cause of bitcoin’s value.
The firm analyzed Bitcoin core (BTC) blockchain and the network’s UTXOs to come up with its conclusions. The blockchain technology uses a ledger mechanism named Unspent Transaction Outputs or UTXOs which is timestamped. The company has used this information to conduct its research throughout the years.
Unchained Capital’s research stated, “It is not possible to make charts such as the one above for traditional asset classes. It’s only bitcoin and other public blockchains that meticulously track these data throughout their whole histories. This enables post-hoc analyses of large-scale market behavior.”
It used a format of colored coded chart to calculate waves of age distribution inside digital currency’s UTXOs.
The research read, “This chart is fascinating because it displays the macroscopic shifts that have occurred in bitcoin’s ownership through history. Spikes in the bottom, warmer-colored age bands (<1 day, one day — 1 week, one week — 1 month) indicate large amounts of bitcoin suddenly transacting. The steady growth of the top, color-colored age bands (2–3 years, 3–5 years, >5 years) shows bitcoin that’s not being transacted with, idling between rallies — The interaction between these two patterns illustrates the behavior of bitcoin’s investors during market cycles.”
Eventually, the team was able to recognize a pattern after every rally which they named the ‘Hodl Waves.’ According to Unchained Capital, the wave gets created in response to the increase in BTC transactions towards market price spikes. After the pattern gets recognized, the UTXOs age with new owners. Bansal said, “[The] pattern of nested curves caused by each age band becoming suddenly much fatter (taller) at progressively later times from the rally.”
As of now the largest recorded ‘Hodl Wace’ occurred between 2013 and December 2017 when bitcoin’s value jumped from $1,000 to $19,000.
Currently, a new wave is forming after December’s spike and the following ‘Crypto winter”. It reflects that a 40 percent fall has been recorded in BTC fractions older than 12 months.
Bansal concluded, “After every great rally, there’s been a great Hodl. As the data shows us, there is already the development of another generation of holders settling in for the long haul.”
Bill Barhydt, CEO of American Express-backed startup Abra, said that with the inclusion of large-scale institutional money in digital currency bitcoin would rise. He specifically mentioned that investors would make “all hell break loose” in the coming years.
It should be noted that bitcoin is going through a period steady growth even after facing bans in China and India. It is expected that the currency will continue to move ahead and reach $20,000 mark again.