The Wolf Den #190 - Hope Is Not A Strategy
A Deep Dive into Bitcoin Ownership From IntoTheBlock
In this report, we bring to you the latest in on-chain cryptocurrency analysis. We look at the blockchain directly and analyze balances, transactions, and the overall activity of market participants. This gives us a unique insight into the future of the market.
This section is written in conjunction with IntoTheBlock (ITB). ITB is an intelligence company that leverages machine learning and advanced statistics to extract intelligent signals tailored to crypto-assets. IntoTheBlock tackles one of the hardest problems in crypto: to provide investors with a view of a crypto asset that goes beyond price and volume data.
The Wolf Den research team uses IntoTheBlock to dig deeper and get the most important insights about the crypto market
This Week Analysis: A Deep Dive Into Bitcoin Ownership
Understanding counterparties is one of the arts of trading in capital markets. The investor composition of a given asset in terms of demographics, trading activity, and even sentiment can be important indicators to predict the behavior of a given asset. In traditional capital markets, investors are constrained to analyses based on price, volume, and order book datasets.
By leveraging machine learning on top of the blockchains and complementing it with other datasets, we can determine how many investors are in a given asset, when they bought, what is their cost basis and from this data have a complete overview of the token holder’s stack.
In this week session, we will analyze Bitcoin ownership through 4 fascinating analytics.
How many Bitcoin holders are out there?
See the IntoTheBlock's Addresses Stats
The metric that most closely resembles the number of Bitcoin holders is the total number of addresses with a balance. Though a Bitcoin user may have more than one address, centralized exchanges also tend to aggregate users’ funds into a few addresses. Therefore, the total number of addresses with a balance acts as a valuable approximation to the number of Bitcoin holders.
As can be seen from the graph above, the number of Bitcoin addresses have been on a consistent uptrend throughout the last year, reaching an all-time high of 36.31 million on March 2. This trend points to an increasing amount of people investing in Bitcoin, accelerating in recent months.
Are Bitcoin Investors Holding for a Long Time or Actively Trading?
See the IntoTheBlock's Ownership by Time Held Stats
IntoTheBlock’s Ownership by Time analysis qualifies addresses based on their activity as long-term holders or Hodlers, medium-frequency investor or Cruisers and high-frequency investors or Traders. This analysis gives you an idea of time positions of individual investors.
Using this indicator, we are able to determine that over 59% of Bitcoin addresses have been holding it for over a year, reaching a peak in December of 2020, the same time when the short-term speculation started to increase along with the price action.
Going deeper into the prevalence of long-term investing in Bitcoin, using the IntoTheBlock’s Unspent Transaction Outputs Age, which serves as a system to account for ownership of Bitcoin and avoid double-spending, we can establish the holding time of Bitcoin addresses.
The percentage of addresses holding for over a year (displayed in colors green to blue) has increased significantly, only diminishing during bubble periods such as 2013 and 2017. Moreover, we can see that the number of Bitcoin’s that hasn’t been moved in over 5 years is up from 3.91m BTC in December of 2019 to 4.06m BTC in December of this year.
See the IntoTheBlock's UTXO Stats
And How Concentrated is Bitcoin?
At IntoTheBlock, we measure the concentration of an asset and divide it into three categories.
Whales: addresses with more than 1% of the circulating supply
Investors: addresses that hold 0.1% to 1.0% of the circulating supply
Retail: all the remaining addresses
When you take a closer look at Bitcoin, you can see that there are no whales, as no address owns 1% of the outstanding tokens, and it only has 45 addresses that hold between 0.1% and 1% (which at IntoTheBlock we call investors). They hold 10.63% of the circulating supply, but one important thing to consider is that of those 45 addresses, only 12 of them are actively trading, which means that a large amount of Bitcoin is not being moved.
But let's dig a little deeper into the Bitcoin concentration. Recently, CoinMarketCap released a new section completely dedicated to the analysis of BTC. As part of that release, CoinMarketCap has partnered with IntoTheBlock to power some of the sections in this new BTC Analysis page. Specifically, IntoTheBlock has provided the data for the Holding Concentration.
The table below shows the breakdown of the number of addresses by the quantity of Bitcoin held in the address.
As can be seen in the graph above, the largest concentration of addresses currently holding Bitcoin (more than 18 million) have a balance of less than 0.001 BTC, aggregating a total of 3,814 tokens.
Moreover, close to 30% of the current circulating supply of Bitcoin is held by wallets holding between 1000-10000 BTC.
Even though there’s a lot to consider and improve yet, counterparty analysis in the blockchain provides a clear advantage against traditional markets. To able to determine how concentrated is an asset, how sensitive it is to price movements by the trading activity of large holders, or to realize how confident investors are in a given asset by the amount of time that they are holding it, are key data points to consider when choosing which asset to invest in.
Bitcoin has evolved into a decentralized, long-term investment by most of its holders, highlighting its transition into a store of value asset.
Bitcoin Thoughts And Analysis
Bitcoin continues to rise out of the correction and looks good. Still, there is some resistance above and we have precedent for January that we could see further correction. I am not concerned about this AT ALL. Whether we go straight up from here or drop once more, I am long term extremely bullish and think we will make new highs very soon.
DAILY CHART
DAILY CHART
Today's high so far was at the drawn resistance, to the penny. We want to see price over that line! At the moment, we have nice candle structure over the past few days and this looks likely to be a reversal on the daily chart. But we need to flip resistance to support.
4-HOUR CHART
This worked out nicely. Break out of the descending channel and small bull flag with a strong move up. And broke above the 50% retracement level that has been a cause for concern. As you can see, price was rejected in the golden pocket - between 61.8% and 65%. We often see Bitcoin moves stall at that level - other markets as well. That's why we always look at that area and why it has such an awesome nickname. This coincides with the resistance on the daily chart. Step by step we go up, but we need to flip this area to support. I want to see the 50% level continue to act as support here now as well.
I recorded a video this morning with my Bitcoin thoughts, so you can watch that in addition to my analysis.
News Video
Yesterday, I did a quick video summarizing the news of the day. You may have missed some of these stories, so it's worth a quick watch.
Dave Portnoy Is Launching An ETF
A master of capturing attention, Barstool’s Dave Portnoy has turned his this skill into a legitimate investment vehicle. When COVID-19 struck and Portnoy could no longer gamble on sports, he dove headfirst into beaten-down stocks, creating a hype group, DDTG, that lives by the mantra “stocks only go up.” He continued to spend his time in the market and even jumped on Bitcoin for a few days only to capitulate days later on a minor correction. Most recently he jumped on the GameStop hype train, shortly announcing he “lost $700m on meme stocks.” If there is one thing Dave that learned on his wild ride, people love gambling alongside him even when he openly loses.
Portnoy’s newest endeavor, a social sentiment ETF, “Buzz” is fueled by memes, trends, and positive social media chatter. The premise is that the algorithm will rotate in and out of companies over a $5b market cap based on positive social media sentiment. 75 companies will sit in the fund, with its current top holdings being “Twitter, Draft Kings, Ford, Facebook, Amazon, Apple, Netflix, AMD, American Airlines, Netflix and Tesla.” Set to release this Thursday, it will be interesting to see how the fund performs. The idea plays well into what Portnoy is a master at - capturing attention, involving a younger generation, and simplifying investing in an enjoyable way.
China Is Cutting Back On Bitcoin Mining
After failing to meet regulatory requirements, China’s Inner Mongolia region is denying future Bitcoin mining operations and shutting down preexisting ones. My initial reaction was this could be a healthy redistribution of mining power since over 60% of Bitcoin mining takes place in China, but realistically the miners will just sell their equipment or relocate to a new region. Inner Mongolia currently accounts for about 8% of global Bitcoin mining, which is about a percentage point higher than the entire U.S. This region is favored for its low-cost electricity which could result in only a portion of the machines coming back online assuming they do attempt to relocate. In the short term, this could bump revenue in other major mining operations like Riot and Marathon who are on the hunt for their first quarter of profitability.
Amazon AWS Integrates With Etheruem
A lesser-known aspect of Amazon's business, their AWS service, is responsible for providing on-demand cloud computing platforms and APIs to individuals, companies, and governments, on a metered pay-as-you-go basis. If you have never heard of AWS or were wondering how popular it is, recent numbers indicate that AWS services about a third of the world’s cloud computing market and controls 47.8% in the Infrastructure-as-a-Service sector.
The Winklevoss twins have likened Ethereum to a blockchain-based AWS. The analogy is that Ethereum is very similar to the web infrastructure Amazon offers. AWS offers a specific blockchain service that is now compatible with Ethereum, providing users the ability to “easily provision Ethereum nodes in minutes and connect to the public Ethereum main network and test networks.” From a macro perspective, this should be really strengthening to the Ethereum network, increasing accessibility for new for nodes to join the network.
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.