Ten pictures to see the current situation of Bitcoin

Change is a strange thing. It can seem like it happens overnight. But the catalysts that enable these changes don’t just pop up randomly. They are seeded, nurtured, and grown over time. This is as true for technology as it is for social, political, and personal change. In 2017, when people on CNBC and Twitter couldn’t stop talking about Bitcoin, it felt like we were on the verge of “change.” The post-dollar economy was finally here. Many people learned in 2018 that change wasn’t here yet. Most of what we saw was a ~30x increase in the price of Bitcoin in a little over a year (November 2016 to December 2017). We may be at the same point in history again. Or maybe not.

Bitcoin has been mentioned on Instagram, influencers of the ecosystem have appeared on CNBC, and JPMorgan Chase believes that Bitcoin is digital gold for millennials. My gut says that the price is likely to rise and then fall sharply. Some will create generational wealth. Some will go bankrupt. Bitcoin must be seen for what it is, not a get-rich-quick scheme. P2P, censorship-resistant, hard currency, with a pre-set monetary system, maintained by proof of work. As we enter a period of price appreciation again, it may be useful to explore the state of Bitcoin in terms of wallet activity, on-chain indicators, and new development progress.

Bitcoin hits record high on-chain transaction volume

The usefulness of Bitcoin as a unit of currency is primarily determined by the number of people using Bitcoin to store value and how often they trade the asset itself. The simplest measure is to look at the on-chain transaction volume. While the price of Bitcoin itself fluctuates from year to year, looking at the USD-denominated transactions helps us measure it in a stable unit. Here we use Coin Metric's data (USD-adjusted transfer value) as a reference. Since 2017, the on-chain transaction volume has been higher every year. This is interesting because years like 2018 had almost no substantial market transactions. We have also witnessed the rise of stablecoins being used for value transfer. My opinion is that Bitcoin is still relied on as the preferred way to transfer large amounts of money. The reason I think this is the case is that the average transaction on the Bitcoin blockchain today is over $50,000. For stablecoins like USDT, the same number is around $10,000. People with large assets still prefer Bitcoin for large transactions due to its censorship resistance and immutability.

Over 8.5 million wallets hold more than 0.01 Bitcoin

To understand how Bitcoin's user base is growing, we split it into individual and whale wallets. This gives us a sense of how the ecosystem is evolving over time. If individuals aren't participating in the ecosystem, that means there's no "new coins" or adoption. If whale wallets are decreasing dramatically, that could indicate a lack of belief in Bitcoin's monetary nature. The data here speaks for itself. We see that in small wallets (0.01 and 0.1 BTC) there has been consistent growth since 2017 and new highs have been created. In fact, the number of daily active wallets hit an all-time high on November 18th.

The whale wallets show an amazing asset swap, from those holding 100 bitcoins to those holding over 10,000 bitcoins. 100 bitcoins is equivalent to over $2 million. Naturally, given that this is a "life-changing" amount of money for an individual, individuals would be inclined to cash out profits near these levels. And this is likely what has happened. Conversely, those holding over 1,000 bitcoins have hit all-time highs. The rapid surge in wallets holding over 1,000 bitcoins leads me to believe that large funds and institutions are indeed here, and it is a rapid accumulation phase. As of November 25, there are already 2,228 wallets holding over 1,000 bitcoins.

500,000 Bitcoins Flowed Out of Exchanges in 2020

The amount of Bitcoin held on exchanges has quadrupled since 2017. The reason for this could be the increase in the number of hedge funds now focusing on digital assets. These institutions have a reason to keep a portion of their holdings on exchanges so that they can convert them back to USD when needed. The total amount of Bitcoin held in existing exchange wallets has fallen from 2.9 million to 2.4 million as of November 25th. This trend is likely to only increase as more Bitcoin investors view it as a store of value rather than a speculative tool. With players like Paypal and Singapore’s DBS Bank now entering the market, this chart may look radically different in the next update, depending on how they choose to enable custody and withdrawals. You can use Entropy to see how Bitcoin has flowed between exchanges over the past few years.

40% of Bitcoin supply hasn't moved in 2 years

Combined with the fact that over 500,000 Bitcoins have been moved off exchanges, another interesting number is that the percentage of Bitcoin that has not moved has been rising. It is a measure of what percentage of Bitcoin has been sitting idle in wallets. As of November 25, 44% of the Bitcoin supply has not moved in the past two years. For more information on this metric, you can go here. This number directly contradicts the idea that Bitcoin is essentially used for crime-related transactions or to facilitate money laundering. A large portion of the network is simply holding assets in idle wallets. Given the fees involved in making transactions on Bitcoin, individuals may view Bitcoin more as a store of value than a payment network. The average Bitcoin holder may use it to hedge against inflation and as another investment tool. The following content will explain why this is the case.

99.70% of UTXOs are profitable

It is likely that "HODL" in the Bitcoin ecosystem is based on some philosophy. There is anecdotal evidence that simply buying and holding the asset can be profitable. The percentage of profitable UTXOs is a measure of the approximate number of people who are profitable on the Bitcoin network. They examine the spread between the current price and the time of the trade. Historically, they have been a good measure of market tops - because the closer you are to 100% for this measure, the more likely you are to have hit an all-time high. The only way people can actually lose money in this case is if they are repeatedly trading on an exchange or are liquidated using leverage.

Bitcoin velocity signals Bitcoin’s usefulness as a store of value

Another signal of changing sentiment towards Bitcoin is the velocity associated with it. Velocity is defined as the value of money circulating on an asset’s chain divided by the market cap of that asset. This metric shows how much of an asset is traded on a given day. For Bitcoin, this value is 0.018. For Tether, it is 0.13. This comparison itself is not fair, as Tether’s transaction fees are a fraction of the cost of trading volume on Bitcoin. However, it is fair to say that more and more individuals are using Bitcoin in situations where decentralization, immutability, and censorship resistance are of utmost importance. Stablecoins, on the other hand, are viewed more as an alternative to traditional fintech means of payment. This makes me wonder if the potential market for stablecoins is much smaller than I initially thought.

Stablecoin supply ratio approaches new low

The Stablecoin Supply Ratio (SSR) in Bitcoin is a metric that compares the purchasing power of Bitcoin and the stablecoins in the ecosystem. It divides the supply of Bitcoin by the value of stablecoins expressed in Bitcoin. This number increases rapidly when the price of Bitcoin increases and the stablecoin supply stagnates. Similarly, when the stablecoin supply increases significantly and the price of Bitcoin remains unchanged, this number decreases. One way to interpret this data is as a measure of people's appetite for volatile assets rather than the risk of the US dollar itself. Another way to think about it is as an indicator of how much Bitcoin a unit of stablecoin can buy. What a falling SSR value generally indicates is that the purchasing power of stablecoins in the market today is decreasing. This situation may change if there is a market correction in the price of Bitcoin and the stablecoin supply remains at its current position of about $25 billion.

Bitcoin transaction volume has quadrupled since 2018

A big part of what drives interest in Bitcoin is its trading on the open market. Individual users often watch its volatility endlessly, often without realizing it, and through this path, understand the macroeconomic implications of the world we currently live in. Trading is essentially Bitcoin's "selling point" to attract businesses and individuals to the new monetary 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, and on the other hand, it represents the many large financial institutions currently serving this industry. On an annual basis, Bitcoin is about to have its most successful year in terms of spot trading volume, with a trading volume of about 8.7 trillion this year. In 2018, the same number was only 2.2 trillion.

Bitcoin value on Ethereum hits $2.5 billion

This chart may annoy at least some of my readers, but given Bitcoin’s role as a store of value, its use in DeFi is important. Porting Bitcoin to Ethereum’s smart contracts enables individuals to generate yield and use it for productive activities rather than leaving it idle. More importantly, it establishes a standard reference rate for lending Bitcoin. As of now, platforms like Blockfi and Nexo can provide Bitcoin lending markets, but they are centralized. And as we saw with 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. The amount of Bitcoin in DeFi can be used to measure the demand for building new financial services for ordinary individual users in frontier markets such as India. It won’t be long before we see a new generation of lending, remittance, and derivatives instruments that unite Bitcoin and Ethereum for this market.

Bitcoin embodies what is possible when human ingenuity and limitless innovation are scaled. Perhaps in the future, we’ll see similar patterns play out in other pressing matters like education reform, healthcare, and agricultural technology. After all, money isn’t the only thing that needs to change in modern society.

Hopefully, this post will be helpful to you as you discuss cryptocurrencies with your friends and the ongoing rally in the market.

Original source: https://cipher.substack.com/p/10-bitcoin-charts