Did you know that out of the total Bitcoins in the crypto world only 19% or approximately 3.5 million are actively traded? The remaining is being held by investors as part of their long-term investments, according to a crypto analytics firm Chainalysis. According to their reports, almost 18.6 million BTC has been mined already by June 2020, out of which approximately 60% is owned by individuals and businesses that have rarely sold more than a quarter of the total number of Bitcoins they have hitherto received. So, this Bitcoin supply is primarily kept for long-term investments and not trading.
Interestingly, a further 20% of the current Bitcoin supply has not been transferred yet from their original addresses in more than 5 years; these are typically termed as “lost Bitcoin”. The remaining 3.5 million out of all the mined Bitcoins are set aside for trading across exchanges. It has been seen that most of the Bitcoins that are not traded are actually held by investors treating this crypto as “digital gold”. The digital gold however is backed by a trading market for people keen to buy or sell Bitcoin frequently. This Bitcoin that is being held for the long haul will become significant for liquidity as more and more people start trading the crypto and Bitcoin’s supply starts to decline following the May halving incident.
According to further reports by Chainalysis, during 2020, as many as 340,000 traders had been engaged in Bitcoin trading on a weekly basis. These traders include both professional and retail traders. The professional ones constitute only about 4% of traders trading actively, that is, approximately 39,000 every week. They are in charge of market liquidity and account for 85% of the USD value of BTC to exchanges. Retail traders are people depositing lower than $10,000 worth of BTC at one go on an exchange. So, it turns out that professional traders turn out to be the key contributors to big market movements like those witnessed at the time of Bitcoin’s dramatic price fall when North America was badly hit by Covid.
It is the 3.5 million Bitcoins that are traded that actually determine its price. As more investors show keenness to trade Bitcoins, which in turn is becoming lower in supply after the May halving episode, Bitcoins are moving from the investment/“lost” bucket into the trade bucket. This however is likely to occur only when BTC values go up to a level where long-term investors are prepared to sell it.
Almost 60% of the Bitcoins that are not “lost” are owned by Virtual Asset Service Provider, a custodial service with license. This includes majority of crypto exchanges and hosted wallets. With Bitcoins heading for mainstream adoption, this share continues to go up. This also means that VASP dominance increases and even those Bitcoins that are not yet held by VASPs are going to pass through them at some point in time or the other. Exchanges are of course the most dominant VASPs since they store and trade Bitcoins. Of the 1.8 million BTC that is transferred every week, 40% moves across exchanges directly while 43% goes through intermediary addresses among VASPs. The big four exchanges are Bitfinex, Huobi, Coinbase, and Binance that account for 40% of all BTC received in 2020 by exchanges. These were followed by ten more who accounted for 36% collectively, and the rest gathered the remaining 24% of volume.