Analysis & Opinions

This Week in Crypto: A Data Perspective (June 29-July 3)

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As the crypto markets continue their calm streak, IntoTheBlock takes a look at what Bitcoin holders (aka hodlers) are doing with their Bitcoin, as well as where some potential on-chain support and resistance levels lie for Bitcoin’s price. And with the DeFi trend still showing no signs of abating, IntoTheBlock also examines the increase in the amount of Bitcoin now on the Ethereum blockchain and where it all came from.

Bitcoin Hodlers Surpass 20 Million as Volatility Drops

With crypto markets remaining eerily quiet in the last few weeks, as reported by Coindesk, it appears that traders have taken a step back. With 30-day volatility at the lowest level since March 2019, there has been increasing speculation about a large move in either direction coming soon. So how is the average Bitcoin holder adjusting their position in response to the low volatility?

Trick question, they aren’t. That is because the average Bitcoin address doesn’t actively trade their position and “hodls” instead. At IntoTheBlock, we classify addresses with a balance and a holding period of over a year as hodlers. As seen on the image below, over 65% of Bitcoin addresses are hodlers:

As of June 30, 2020 at 7PM (EST) using IntoTheBlock’s ownership indicators.

Moreover, it may not be apparent at first glance, but the percentage of addresses hodling has been increasing throughout the last 12 months, up from 61.2% in June 2019. 

While the percentage of addresses represented by hodlers appears to have a modest increase, the growth is much more noticeable when looking at the absolute number of addresses holding Bitcoin for over a year. The number of Bitcoin hodlers has increased by over 25% from a year ago and has recently surpassed a major milestone: 20 million addresses.

As of June 30, 2020 at 7PM (EST) using IntoTheBlock’s ownership indicators.

The growth in the number of addresses hodling is even more remarkable when you consider that it has increased every single month out of the last twelve, including March, when prices dropped by more than 50% top to bottom. 

Therefore, while countless articles have been written speculating about where the next big move might take Bitcoin, on-chain data suggests that the average holder is unaffected by the short-term outcome. They will be “hodling on.”

Grayscale Demand vs. Large On-Chain Resistance

For the remaining 35% of addresses who do actively trade Bitcoin, you may be interested where the next on-chain support and resistance levels lie. Leveraging blockchain’s public nature, IntoTheBlock is able to extract key levels of previous buying and selling activity, devising a crypto-native equivalent of traditional support and resistance.

Using machine learning to identify the most relevant clusters of addresses’ positions, IntoTheBlock is able to determine the number of addresses and volume of tokens profiting (in the money) or losing money (out of the money) at a given price. Based on the aggregate of these positions, we can then validate support and resistance levels and determine the strength of these using on-chain data.

As of June 30, 2020 at 8PM using IntoTheBlock’s In/Out of the Money indicators

As can be seen in the graph above, the In/Out of the Money Around Price (IOMAP) indicator detects that 1.66 million addresses had previously bought 1.17 million BTC at the range between $9,150 and $9,420. This is a critical resistance level, as several of these addresses will attempt to break even on their positions. Additionally, the IOMAP cluster between $9,420 and $9,690 has 1.03 million BTC out of the money, making it two strong consecutive levels of resistance for Bitcoin to overcome if it wants to continue climbing. 

On the other hand, bulls may point to Grayscale’s large buying activity as a source of strong demand. While the amount purchased by Grayscale for its GBTC fund is outpacing the amount mined, it is important to note that the 900 Bitcoin (~$82 million) mined daily represents a mere 0.08% of Bitcoin’s average daily on-chain volume of $9.75 billion. In addition to the expected demand from large institutions like Grayscale, Bitcoin holders in the money tend to buy more, attempting to keep profiting from their positions. Based on the IOMAP, we can determine that 1.39 million addresses previously bought 837K BTC at the range between $8,860 and $9,130, a level which acted as support previously on June 15, 27 and 28. Past this point, there is expected to be support around the $8,600 mark where 650K Bitcoin was previously bought. From there on, though, support levels weaken — as displayed by the size of the clusters in the IOMAP — pointing to the possibility of a large drop were price to drop past this level.

DeFi Partnership Boosts Bitcoin on Ethereum

DeFi’s growth in 2020 can be summarized by one word: incentives. As yield farming and staking have boosted rewards for DeFi token-holders, they have also supercharged the demand (and prices) of protocols’ native tokens. Aside from COMP’s meteoric rise, the so-called “Bitcoin on Ethereum” tokens have also benefited remarkably as a result of added incentives and functionality.

While there are several tokenized versions of Bitcoin on the Ethereum blockchain, Wrapped Bitcoin (WBTC) — a centralized alternative held by the custodian Bitgo — remains the largest with a market cap of approximately $75 million at the time of writing. WBTC uses a proof of reserve mechanism which keeps the peg with BTC at 1:1 through the burning and minting of tokens. 

Recently, Bitcoin tokens on Ethereum got introduced to the world of yield farming through a partnership between the DeFi protocols Synthetix, Curve and Ren as covered on The Defiant on Decrypt. Through the initiative, Bitcoin holders are incentivized to provide liquidity in a Bitcoin ERC-20 pool by offering them rewards in several DeFi tokens — SNX, REN, CRV and BAL — in proportion to the liquidity they supply.

The release instantly boosted WBTC’s on-chain activity. IntoTheBlock’s large transaction volume indicator measures the aggregate volume spent on transactions of a value over $100,000. While data for this indicator for WBTC was close to non-existent throughout 2019 and the first quarter of 2020, it surpassed $300 million following the yield farming partnership.

As of June 30, 2020 at 4pm using WBTC’s large transaction volume chart. 

As readers may have guessed, it is not average users that are pumping WBTC’s large transaction volume to $300 million. With novel features like yield farming, DeFi has ignited the creation of new types of organizations that benefit from sophisticated use of smart contract functionality. As evidenced by the spike in large transaction volume — and many more IntoTheBlock indicators — WBTC has attracted these new institutions and large players, quickly sparking its network activity and market capitalization. 

Through DeFi’s “money legos,” tokens are integrating within protocols in creative ways that incentivize user adoption, as highlighted with the WBTC yield farming example. While currently only 0.05% of Bitcoin supply is held in Ethereum smart contracts, incentive-boosting mechanisms such as these are likely to continue increasing this percentage as long as there are no major vulnerabilities exploited in the underlying protocols. Ultimately, both Bitcoin and Ethereum stand to benefit if this growth spurts large players and retail users to leverage these functionalities. 

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ITB is a tribe of data scientists, cryptocurrency experts and AI geeks that set out on a journey to unlock the mysteries of crypto assets and provide investors with relevant intelligence about the market.

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