Analyzing an Asset Through its Distribution

You may not know all of Santiment's metrics, but the supply distribution metrics can be one of the most valuable for your research, trading, and investing analysis.

Supply distribution refers to how many coins are held by different groups of investors. By analyzing wallet sizes, traders can gain insights into market trends and predict potential price movements. This method helps identify whether large investors (often called whales) are accumulating or selling Bitcoin, which can be a key factor in future price direction.

Analyzing an asset's supply can of course be applied to any asset, even though we will be using Bitcoin as a quick example in this article. But feel free to use this template to check out any ERC-20 asset's number of wallets by tier or supply held by tier.

As for Bitcoin, we like to look at small retail traders as wallets holding 0.01 or less BTC. These wallets are often holding less and less of the supply of Bitcoin right before a big surge. Take a look at the past 2 years of their ratio of coins held. Notice how they began to dip big just before the June, 2023 and October, 2023 rallies kicked off:

If small wallets (0.1 BTC or less) are increasing rapidly, it may be a warning that the market is overheating and a correction is near.

On the other end of the spectrum, we often see whales (defined as wallets holding 100 or more BTC) accumulating just before rallies start. They are quite literally scooping up the coins that small retail traders are shedding, and then using that capital to push up prices.

If whale wallets (10+ BTC) are accumulating, it suggests that smart money is buying, which historically leads to price increases over time. However, if they are declining, it may indicate that large investors are taking profits, which could lead to a price drop.

We should also mention the importance of an asset's total amount of holders, which is essentially the total amount of non-empty wallets currently existing on a network. As you may guess, the vast majority of wallets on any network are comprised of small wallets. There are currently 42.26M wallets holding less than 0.01 BTC, which makes up 77.4% of the overall 54.62M non-emptry wallets overall.

So logically, we can affirm that prices typically react in a bullish fashion when the total amount of wallets on a network begins to consolidate. And if this total number begins going up very quickly, it's a sign that we likely are going to see a cool-down period with market prices. This is essentially what happened when crypto FOMO was peaking in March and April of 2024.

Past data has shown that major Bitcoin bull runs often start when whales increase their holdings while small traders panic-sell. The accumulation of Bitcoin by these large players from retail traders sets the stage for long-term price appreciation.

By keeping an eye on supply distribution trends, traders can make more informed decisions and avoid the common pitfalls of emotional trading.

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Disclaimer: The opinions expressed in the post are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.