This week, IntoTheBlock analyzes the on-chain data to see how speculative Bitcoin as an asset really is.
IntoTheBlock brings you on-chain analysis of top news stories in the crypto space. Leveraging blockchain’s public nature, IntoTheBlock’s machine learning algorithms extract key data that provide a deeper dive into the major developments in the industry.
Two On-chain Indicators That Show How Bitcoin Is Mostly Not Used as an Speculative Asset
One of the arguments held by critics of Bitcoin is that it is an asset that gains attraction solely due to its speculative nature. Forgetting about its own properties and becoming fixed just with its price action is easier when it has been the best performing asset in the last 10 years. But can we measure how much speculative activity is behind the rise of Bitcoin?
A coin having many speculative patterns would mean that most of its circulating supply is being constantly bought and sold. Therefore most of the coins would be in constant movement from one investor to another instead of being just bought and stored. Thanks to on-chain data analysis we can observe if Bitcoin holders are behaving in such a way.
The first indicator shown is the Ownership by Time Held. It shows three categories of investors depending on how long they have been holding their coins.
As of October 27 using IntoTheBlock’s Bitcoin ownership indicators
Categorized as Hodlers, are those that have been holding Bitcoin for more than a year. This group usually holds around 60% of the circulating supply, a percentage that has not changed much in the last year. The fact that more than half of the supply is in hands of investors that have not moved their coins in more than 1 year means that the majority of investors consider Bitcoin a long term investment. The second group, Cruisers, are those that have been moving their coins in the last 1 to 12 months. The large increment of this group relative to one year ago is a good proxy of how many investors have bought bitcoin in the last 1 to 12 months and continue to hold. The last category, Traders, show the group that are using Bitcoins more actively, and thus are a proxy of speculation. This group accounts for a minority of almost 8%, a group that also has been slightly decreasing in the last year.
In the next chart it can be appreciated the volume of transactions activity over time relative to its age, with colors blue to red based on how recent those coins were last transferred. The recent growth of the yellow bands points to an increase in the number of coins that have entered the market over the past 6 to 12 months (this currently accounts for 20% of Bitcoin in circulation). While the blue band measures for transactions several years older, which continues steadily to grow pointing out how Bitcoin is becoming less and less transacted and thus more stored as an investment over time.
As of October 27 using IntoTheBlock’s Bitcoin network indicators
The data can be gathered in a single metric that takes into consideration all Bitcoin addresses and their activity. This is calculated by averaging the holding times of all addresses before they transfer (or sell) Bitcoin. The average time that Bitcoin is held is 3.3 years. Over an asset with a lifetime of 13 years it can be concluded that Bitcoin on average has been held for more than one quarter of its lifetime.
These analytics show that behind the buying activity of Bitcoin there is a real demand of investors that want to hold the asset for the long-term. This is in line with the thesis that Bitcoin is being used mostly as a store of value, which can be held for years without it losing its value. In fact in the last month there have been opinions by influential institutions like JPMorgan or investors like Paul Tudor Jones assessing Bitcoin as a better inflation hedge than gold. So far this has been true for Bitcoin, and there are no early signs that holders should start thinking otherwise.
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