Correlation Between Bitcoin Price and Total Supply of Long-term Holders

This paper discusses the relationship between Bitcoin price and the number of Bitcoins held by Long-term holders (LTHs) through VAR and ARMA-GARCH models. The research and study continue to analyze the volatility of Bitcoin price while adding possible variables that modify the models better. The purpose is to better learn the market mechanics of Bitcoin and forecast price changes and long-term holders’ behaviors. In this paper, two relationships are established: first, there’s a long-term negative correlation between an increase in price and the number of Bitcoins held by LTHs. Second, the volatility of price and the volatility of the number of Bitcoins held by LTHs are positively correlated. Compared to previous analyses of the volatility of Bitcoin price, this paper considered a possible influential factor, the supply of LTHs, during the research. Based on the findings, suggestions for future investigations are given to consider short-term holders’ relationship of the two variables mentioned in this paper. Financial institutions can better forecast the behaviors of other LTHs, whereas individual investors can have a better understanding of the market mechanism of Bitcoin while learning the behaviors of LTHs.