Throughout bitcoin’s entire history, the price of the crypto asset has been almost entirely driven by retail buyers and sellers who follow the hype cycles around the cryptocurrency in the media. Whenever the price has started to tick up a bit, the media tends to take notice and publish stories about how the bitcoin price has risen over the past days, weeks, or months, and it’s common for crypto newcomers to find their way into the market by first seeing one of these news reports. The average person on the street sees the potential to double or triple their money by placing a short-term bet on the bitcoin price. Eventually, the market gets out of hand and then crashes heavily after too many people end up buying the asset without understanding its underlying value proposition.
This scenario has played out at least twice in bitcoin’s history so far, with the price booming and busting after each halving of the creation of new bitcoin every ten minutes. However, these bitcoin price cycles may soon be a thing of the past, as the evidence shows the big boys are now here to play, which could change the dynamics at play during the current bull run.
Blockchain Data Shows the Big Boys are Accumulating
One of the most interesting aspects of the Bitcoin network from a data collection perspective is that all movements of bitcoin can be seen by anyone with a copy of the blockchain. While there are not real-world identities attached to Bitcoin addresses, transactions between users and the amounts involved in those transactions are completely public. This makes it possible to analyze the types of users that are potentially buying or selling bitcoin at any one time.
Willy Woo is a well-known bitcoin analyst who makes heavy use of this on-chain data in his research. In a recent tweet, Woo pointed out that on-chain data indicates a large, institutional buyer has likely been accumulating bitcoin during the recent price downturn. The blockchain-based data Woo used to back up his claim showed that balances on exchanges declined during the recent price dip and coins had moved to Bitcoin users who do not have a history of selling coins in the past. Coins moving off of exchanges is generally viewed as a bullish indicator because it means bitcoin holders could be moving funds into their own non-custodial wallets for long term storage. This effectively lowers the supply of bitcoins for sale to new buyers on exchanges.
This is just one example of the sort of on-chain analysis that can be done to see what kinds of entities are accumulating bitcoin, but it should be noted that this data is far from perfect, as it is sometimes difficult to verify who owns a particular Bitcoin address. That said, a blockchain analytics platform like Chainalysis likely has a pretty clear picture of the overall bitcoin holder base.
Anecdotal Evidence for Institutional Adoption
Of course, on-chain data isn’t necessarily needed to know that large institutions are either buying bitcoin or helping their clients get their hands on the world’s largest crypto asset. Multiple publicly-traded companies, such as Square and Tesla, have made large bitcoin purchases with the intention of holding the digital asset as a hedge against a potential devaluation of the U.S. dollar over the next decade. MicroStrategy currently has the largest bitcoin holdings for a publicly-traded company, with a current value of more than $5 billion.
Governments are also getting in on the action, as it was recently revealed that New Zealand’s KiwiSaver Growth Strategy fund allocated five percent of their portfolio to bitcoin in the last quarter of 2020. Additionally, New York Digital Investments Group CEO Robert Gutmann recently claimed that his firm has had multiple conversations with various sovereign wealth funds around the world regarding potential diversifications into bitcoin. Billionaire investor and Real Vision founder Raoul Pal has also indicated that Temasek, which is Singapore’s sovereign wealth fund, has already started purchasing bitcoin from miners.
On top of actual purchases of bitcoin, large institutions from PayPal to JP Morgan have developed platforms for their customers and clients to handle their own purchases of bitcoin and other crypto assets. These moves have basically acted as a stamp of approval of sorts for bitcoin from various brands that the average person on the street already knows and trusts.
A Bitcoin-Only Phenomenon
Thus far, the changing dynamics in the bitcoin market have not also been seen in the greater crypto asset market. Going forward, it will be interesting to see whether some alternatives to bitcoin can also grab the attention of some of the wealthiest individuals and institutions in the world. If not, we may start to see a further decoupling of bitcoin from the rest of the market.