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Change is a very strange thing. It looks like it happened overnight. But the catalysts for these changes did not emerge randomly. They are planted, nurtured and grown after a period of time. This is as important to technology as it is to social, political and personal changes (changes). In 2017, when people on CNBC and Twitter couldn’t help talking about Bitcoin, it felt like we were on the verge of “change”. The post-dollar economy finally came. Many people learned in 2018 that change has not yet come. Most of what we see is that the price of Bitcoin has risen by about 30 times in just over a year (November 2016 to December 2017). We may be at the same point in history again. Or maybe not.
Many people on Instagram have begun to mention Bitcoin, and ecosystem influencers have appeared on CNBC. JPMorgan Chase believes that Bitcoin is the digital gold of millennials. My instinct says that prices are likely to rise and then fall sharply. Some people create intergenerational wealth. Some will go bankrupt. Bitcoin must see its essence, not as a plan to get rich quickly. P2P, anti-censorship, hard currency, there is a pre-set currency system, which is maintained by proof of work. When we enter a period of price increases again, it may be useful to discuss the state of Bitcoin from wallet activities, on-chain indicators, and new development progress.
Bitcoin hits a record high on-chain transaction volume
The use of Bitcoin as a currency unit is mainly determined by the number of people using Bitcoin to store value and the frequency with which they trade the asset itself. The simplest measure is to look at the transaction volume on the chain. Although the price of Bitcoin itself fluctuates year after year, exploring transactions denominated in dollars helps us measure it with a stable unit. Here we take Coin Metric’s data (transfer value adjusted by USD) as a reference. Since 2017, the annual transaction volume on the chain has been relatively high. This is interesting because there are almost no substantial market transactions in years like 2018. We have also witnessed the rise of stablecoins used for value transfer. My opinion is that Bitcoin is still being relied on as the preferred way to transfer large amounts of money. The reason I think so is because the average transaction value on the Bitcoin blockchain today is more than $50,000. For a stable currency like USDT, the same figure is around $10,000. Considering the censorship resistance and immutability, people with huge assets still prefer large-value bitcoins.
More than 0.01 bitcoins held in more than 8.5 million wallets
In order to understand how the user base of Bitcoin has grown, we divide it into personal and whale wallets. This allows us to understand how the ecosystem has evolved over time. If the individual is not participating in the ecosystem, it means that there is no “new currency” or adoption rate. If the whale wallet decreases sharply, this may indicate a lack of faith in the currency of Bitcoin. The data here can illustrate the problem. We found that the small wallets (0.01 and 0.1 Bitcoin) have continued to grow since 2017 and have created new highs. In fact, the number of daily active wallets hit a record high on November 18.
Giant Whale Wallet presents amazing asset swaps, from those holding 100 bitcoins to those holding more than 10,000 bitcoins. 100 Bitcoins are equivalent to more than 2 million U.S. dollars. Naturally, given that this is a “life-changing” money for individuals, individuals will tend to cash in profits near these levels. And this is probably what has happened. Conversely, those who hold more than 1,000 bitcoins have reached a record high. The rapid increase in wallets holding more than 1,000 bitcoins makes me believe that large funds and institutions have indeed come, and it is a stage of rapid accumulation. As of November 25, there were already 2,228 wallets holding more than 1,000 bitcoins.
500,000 Bitcoins will flow out of exchanges in 2020
Since 2017, the number of bitcoins held on exchanges has tripled. The reason may be the increase in the number of hedge funds focusing on digital assets. These institutions have reasons to keep part of their holdings in exchanges so that they can be exchanged back to U.S. dollars when needed. As of November 25, the total number of bitcoins held in existing exchange wallets has fallen from 2.9 million to 2.4 million. As more and more Bitcoin investors see it as a store of value rather than a tool of speculation, this trend may only increase. It depends on how they choose to enable hosting and withdrawals. You can use Entropy to look at the flow of Bitcoin between exchanges in the past few years.
40% of the Bitcoin supply has not been moved in 2 years
Combined with the fact that more than 500,000 bitcoins have moved out of the exchange, another interesting number is that untouched bitcoins have been rising. It is a measure of the proportion of Bitcoin that has been idle in the wallet. On November 25th, 44% of Bitcoin supply had not moved in the past two years. For more information about this indicator, you can move here (https://unchained-capital.com/blog/hodl-waves-1/) to find out. This number directly contradicts the view that the essential purpose of Bitcoin is to be used in crime-related transactions or to facilitate money laundering. A large portion of people in the network simply store assets in idle wallets. Considering the costs involved in conducting transactions on Bitcoin, individuals may view Bitcoin more as a store of value than a payment network. Ordinary Bitcoin holders may use it to hedge against inflation and as another investment tool. The following content will explain why this happens.
99.70% of UTXOs are profitable
“HODL” in the Bitcoin ecosystem is likely to be based on a certain idea. There is anecdotal evidence that you can make a profit just by buying and holding assets. The percentage of profitable UTXOs is a measure of the approximate number of profitable people on the Bitcoin network. They check the difference between the current price and the trading time. Historically, they are a good measure of the top of the market-because for this measure, the closer you are to 100%, the more likely you are to reach the highest point in history. In this case, the only way people actually lose money is if they trade repeatedly on exchanges or are liquidated using leverage.
The speed of bitcoin circulation marks the use of bitcoin as a store of value
Another signal of changes in people’s perceptions of Bitcoin is the speed of circulation associated with it. Velocity is defined as the currency value of an asset circulating on the chain divided by the asset’s market value. This indicator shows the trading volume of an asset on a given day. For Bitcoin, the value is 0.018. Tether is 0.13. This comparison itself is not fair, because Tether’s transaction fees are a small fraction of the cost of transaction volume on Bitcoin. However, it is fair that more and more individuals use Bitcoin in situations where decentralization, immutability, and censorship resistance are paramount. On the other hand, stablecoins are more regarded as alternatives to traditional financial technology payment methods. This makes me wonder whether the potential market for stablecoins is much smaller than I initially thought.
The supply ratio of stablecoins tends to new lows
The Stablecoin Supply Ratio (SSR) in Bitcoin is a measure that compares the purchasing power of Bitcoin and stablecoins in the ecosystem. It divides the supply of bitcoins by the value of stablecoins expressed in bitcoins. When the price of Bitcoin rises and the supply of stablecoins stagnates, this number will increase rapidly. Similarly, when the supply of stablecoins increases substantially while the price of Bitcoin remains the same, this number will decrease. One way to interpret this data is to measure people’s preference for volatile assets, rather than the risk of the dollar itself. Another method is as an indicator that a unit of stablecoin can buy Bitcoin. The decline in SSR value usually indicates that the purchasing power of stablecoins on the market today is declining. If there is a market correction in the price of Bitcoin and the supply of stablecoins remains at the current position of approximately $25 billion, this situation may change.
Since 2018, Bitcoin transaction volume has increased 4 times
A large part of what motivates people’s interest in Bitcoin is its open market transactions. Individual users usually unknowingly and endlessly observe its volatility, and use this path to understand the macroeconomic impact of the world we currently live in. Transaction is essentially a “selling point” for Bitcoin to attract companies and individuals into the new currency system. This is why it is important to pay attention to Bitcoin’s trading volume in the spot market. On the one hand, it shows the number of individuals active in its market as speculators. On the other hand, it represents the many large financial institutions currently serving this industry. According to the year, Bitcoin is about to usher in the most successful year of spot trading volume, this year’s trading volume is about 8.7 trillion. In 2018, the same figure was only $2.2 trillion.
The value of Bitcoin on Ethereum has reached $2.5 billion
Given Bitcoin’s role as a store of value, its use in DeFi is very important. Porting Bitcoin to Ethereum’s smart contract enables individuals to generate revenue and use it for production activities instead of idle. More importantly, it established a standard reference interest rate for lending bitcoin. As of now, platforms like Blockfi and Nexo can provide the Bitcoin lending market, but they are centralized. And as we have seen in the recent bankruptcy of Cred, the lack of information about how they handle these assets can have disastrous results for users who rely on digital assets for banking business. The number of bitcoins in DeFi can be used to measure the need to establish new financial services for ordinary individual users in frontier markets such as India. It won’t be long before we will see a new generation of lending, remittance, and derivative instruments that combine Bitcoin and Ethereum for this market.
Bitcoin embodies what can happen when human ingenuity and unlimited innovation are scaled up. Perhaps in the future, we will see similar models unfold in other urgent issues such as education reform, medical care, and agricultural technology. After all, currency is not the only thing that modern society needs to change.
I hope this article will be helpful to you when discussing cryptocurrencies and the continued upward trend in the market with your friends.