On-chain signal: Why Bitcoin may grow explosively in the next 12 months

Author: Crypto Compound, compiled by: Shaw bitchain vision

The Bitcoin market is in a rare stage:On-chain data, holder behavior and institutional capital flows are all showing a trend, indicating that Bitcoin will rise strongly in the next year..While prices themselves can only reflect some of the situation, on-chain indicators allow us to see the confidence of holders, supply dynamics, and the real-time fundamentals that drive this asset.

Let’s analyze what’s happening, the holders’ positions and why the reason for bullishness over the next 12 months is more than most people think.

Current status on the Bitcoin chain

If we put aside the interference of daily headlines and short-term volatility, the Bitcoin network itself shows extraordinary power.

• illiquid supply hits record high: About 72% of the current supply of Bitcoin circulation is present in wallets with little or no transaction history.This is equivalent to more than 14 million bitcoins actually “exit the market”.Every new rise must compete with less and less tradable circulation, and once demand surges, the upward momentum will be amplified.

• A record high in market value: The realized market value (all tokens based on the total value after the final transaction price) has exceeded US$1 trillion.This shows that there is more actual funds entering and retaining the network than at any time in history.Investors are buying at higher prices and not selling.

• Exchange balance continues to decline: Exchange reserves are close to their lowest levels in years.This means that the number of cryptocurrencies sold at the click of a button is decreasing.Historically, low exchange balances tend to indicate tight supply because self-custodial cryptocurrencies are often held for a longer period of time.

• Computing power and difficulty hit record highs: The difficulty of mining has climbed to a historical high, and the computing power has continued to break through new highs.This is the long-standing trust of the network by miners, who invest heavily in hardware and infrastructure to ensure network security.This reflects the resilience of the network, not fragility.

Overall, the situation is simple: supply is limited, full of confidence, and the network itself has never been more powerful.

Holder behavior: Who is selling, who is insisting

One of the most powerful features of Bitcoin’s on-chain data is that it allows us to differentiate market participants based on the holding time frame.

• Short-term holders (STH): Holding cryptocurrencies for less than 155 days.Historically, they are most likely to sell in panic or chase the rise in the later stages.Recent data shows that STH has been selling at a loss during the market pullback – a typical weak hand behavior.They have been marginal sellers during market volatility.

• Long-term holder (LTH): These tokens have been held for more than 155 days and are still the backbone of the network.The supply of LTH is at or close to an all-time high.The longer the tokens are held, the less likely they are to be transferred.Even during the entire summer price fluctuation, LTH continued to increase its holdings and only selectively took profits at local highs.

What is important here is not only distribution, but also absorption.When short-term holders sell in panic, the market is looking for people willing to hold for a long time to take over the tokens.This is the transfer of supply from weak hands to strong hands – this is the basis for the continued sustainedness of every bull market.

Demand side: institutions and ETFs

In terms of demand, two factors dominate: U.S. spot exchange-traded funds (ETFs) traffic and institutional holdings.

• ETF funds inflow: After a weak period in the early summer, the inflow of US Bitcoin ETFs accelerated again.Some days even brought in more than $500 million in net new demand.More importantly, these capital flows tend to show a gathering trend – they performed strongly for several consecutive trading days, thus creating continuous buying pressure.

• Institutional holdings: Futures open contracts and custody reports show that the main driving force of this round of rise is not leverage or retail fanaticism, but driven by stable institutional configuration.This requirement is often more “sticky”.They are not day traders, but portfolio managers who see Bitcoin as a hedge tool for macro assets and long-term currency depreciation.

In short: supply is tight, while professional demand is stable.This combination is rare and powerful.

Reasons for bullishness in the next 12 months

So, why do all these factors add up to form a bullish outlook?Here are the six core pillars:

Structural supply tight

As illiquid supply reaches record levels and exchange balances are tight, any increase in demand will be affected by supply constraints.ETFs continue to increase by hundreds of millions of dollars per week.This is a typical supply tightening situation.

Market value has been increased

The market value has been achieved exceeding $1 trillion, reflecting the “sticky” demand at higher prices.Historically, whenever the indicator reaches a new high, it will lay the foundation for higher market prices, as this suggests that these funds are unlikely to sell when they lose money.

The on-chain risk is still moderate

Indicators such as MVRV z-score (a benchmark for comparing current market prices to average holder costs) have risen, but are far from overheating.In the past cycle, the top of the skyrocketing only occurs when these signals reach extreme levels.We have not reached this stage yet and there is still a lot of room for improvement.

Miner confidence

Difficulty and computing power are at historical highs, which shows that miners are still expanding their mining capacity even after the halving.Miners are “believers” of long-termism; they won’t invest billions of dollars in infrastructure unless they expect prices to rise in the future.

Strong seasonality

The fourth quarter has historically been one of Bitcoin’s strongest performances, with many gains starting in September and accelerating at the end of the year.This year’s price trend—a local low in early September—perfectly fits this pattern.

Specialized flywheel

Every quarter when ETFs run smoothly, more institutions will gain confidence in allocation.Every new Registered Investment Advisor (RIA) platform, family finance office or corporate finance department approves Bitcoin investment, which increases the demand base.The longer the mode runs smoothly, the stronger the flywheel becomes.

Risks to be paid attention to

There is no bull market in the market that is inevitable and there are risks worth tracking.

• Short-term holders excess: STH bought near highs may continue to sell at highs, thus forming a resistance zone that needs to be absorbed.

• Macro impact: Major safe-haven incidents in traditional markets may temporarily curb demand.

• Miner pressure: If the difficulty continues to rise but the handling fee remains low, some miners may need to cash in assets.However, historically, the market can absorb miners’ selling behavior without changing the trend.

These are real risks, but unless they are combined with weak systemic demand (not yet obvious yet), they will not fundamentally undermine the long-term trend.

Key points of investment positioning

For investors, the information conveyed by on-chain data is clear:

• Use callbacks as opportunities: When short-term holders give up resistance and SOPR (realized price-to-return ratio) falls below 1, it usually marks a favorable accumulation area.

• Pay close attention to the flow of ETF funds: The capital inflow that lasted for many days is a strong signal that institutions are actively buying.

• Track illiquid supply and realized market value: If the bull market remains unchanged, both indicators should continue to show an upward trend.

The first priority should be to gradually establish positions, respect volatility and pay close attention to fundamental indicators.

Summarize

Bitcoin is at a time when supply dynamics, holder confidence and institutional demand meet.illiquidity supply hit a record high.The market value has reached its highest level in history.The exchange balance is sparse.ETFs are continuing to buy.Miners continue to maintain cybersecurity at an unprecedented level.

Based on all the above factors, the most likely trend in the next 12 months is not horizontal fluctuation, butPrices rise sharply.Market volatility will continue – this has always been the case.But the structural basis of this market is more stable, deeper and more resilient than at any stage in Bitcoin’s history.

For long-term investors, the information is simple: the bull market pattern has not changed, and there may be a major change in the next 12 months.