Regulators take center stage as BTC undergoes price discovery
Large Bitcoin transactions suggest institutions have been accumulating
An original research report analyzing BTC transaction data to assess market behavior and trends in 2020.
Written by OKEx Insights | Powered by Catallact
A PDF of the following report has been included at the bottom of this page so that readers can view, download and share it at their convenience.
Since at least 2013, the Bitcoin and cryptocurrency space has seen an increasing number of institutional investors and large "smart money" players accumulate BTC. This phenomenon has accelerated over the past few years — with the industry noting the rise of institutional investment each time another well-known fund joins the bandwagon — growing hand in hand with the rise of the Bitcoin derivatives market.
In May 2020, the "institutions are here" narrative was bolstered yet again when well-known macro investor Paul Tudor Jones announced that his fund would be investing in BTC futures as a hedge against inflation. The story was strengthened further by the news that Nasdaq-listed, $1.2 billion business intelligence company MicroStrategy acquired 21,454 BTC — worth over $250 million, at the time — in an effort to defend its reserve treasury against fiat inflation.
With stories like these hitting the headlines, it is easy to agree with the general narrative that BTC is increasingly becoming more attractive to institutional investors and big players — especially, perhaps, in 2020. But what does the on-chain Bitcoin data tell us about large-scale investor behavior this year?
In order to answer this question, OKEx Insights and blockchain data firm Catallact have once again teamed up to take a look at transaction data taking place on the Bitcoin blockchain. In this report, we examine whether or not we can make an argument that institutional investors and big-money players have, in fact, been accumulating BTC this year.
A note on how we interpret on-chain data
But first, a few words of warning. Though this report is research-based, on-chain data cannot tell us everything, and analysts need to exercise caution when trying to draw conclusions from it.
For example, we can examine large BTC transactions, but we cannot cleanly differentiate how many of them are purchases, sales, movements of aggregated transactions from cryptocurrency exchanges, or large movements from institutions and funds. Still, looking at these large BTC transactions, we can make careful observations and present possible conclusions.
Additionally, the data being examined in this report begins in January 2020 and ends in the beginning of August 2020. As such, it does not take into consideration BTC transactions throughout the bulk of August and beginning of September, when the price saw a decline from its recent high in July.
Large BTC transactions are uncommon
Before we dig too deep into the on-chain data, let's start with the basics.
When we examine the number of transactions taking place on the Bitcoin blockchain and plot them by the number of coins being transacted, we see results that are in no way unexpected — but it is important to note them, nonetheless.
The smallest transactions — those between 0 and 1 BTC — make up the lion's share of the USD value changing addresses on the Bitcoin blockchain. The number of these smaller transactions, over time, generally tracks the price of BTC. Meanwhile, as the BTC transaction size increases, the number of transactions decreases.
In short, the larger the movement of coins on the Bitcoin blockchain, the less common it is.
Though this might not seem like a point worth mentioning, it is essential to understand that the number of transactions carrying small amounts of BTC vastly outweighs the number of transactions carrying medium-to-massive amounts of coins. As such, if and when we see an uncommonly high or low number of large BTC transactions taking place, we are free to hypothesize and draw certain conclusions.
Before we get to those conclusions, however, let's first work our way through more specific on-chain data relating to the number of transactions by size (in BTC) in an effort to spot the noteworthy inconsistencies.
Retail took a wait-and-see approach at $10,000 in May
Let's start from the most common type of BTC transactions — those of less than one-tenth of a coin. For all intents and purposes, we can feel comfortable calling these transactions "retail," given that institutions and big players are far less likely to transact in such small amounts of BTC than your average individual.
Unsurprisingly, the number of daily transactions of less than 0.1 BTC very closely tracks the digital currency's price movement. This suggests that retail investors buy and sell relatively small amounts of BTC as the cryptocurrency's price fluctuates and that they may be more easily "shaken out" of the market in times of high volatility and dramatic price declines.
The most interesting deviation we can see from the chart above is that which took place throughout May 2020, as BTC approached its third block reward halving. The price of BTC returned to the psychological $10,000 level, which it had last reached before the major price crash in mid-March. Throughout the month, the daily number of small retail transactions decreased and deviated away from the price's trend — suggesting that retail investors took a wait-and-see approach as BTC began a season-long, post-crash accumulation period.
Medium-sized transaction activity decreased after the March crash
Moving on to medium-sized transactions — which are more likely to come from miners and/or bigger retail players — we see a different pattern emerge.
When we examine the number of transactions of between 10 and 100 BTC per day, we see two things worth noting:
- The average number of transactions decreased immediately after the COVID-related market crash in March and remained lower than what preceded it.
- The average number of transactions has been trending upward since late June.
The suggestion here is that the March crash shook out some bigger retail players, while transaction activity from Bitcoin miners decreased after the leading cryptocurrency's block reward halving. The number of transactions of this size, however, has been steadily increasing since the end of June.
Jumping to the next tier in this grouping, we immediately notice that the number of daily transactions between 100 and 1,000 BTC preceding the March crash was lower than those between 10 and 100 BTC. This is in line with what we noted earlier, that the overall number of transactions decreases as the value of the transactions increases.
However, in March, the number of transactions between 100 and 1,000 BTC noticeably deviated from the trend they had been forming when the Bitcoin and cryptocurrency market crashed in a period of COVID-related panic.
Afterward, it immediately resumed its normal trend — suggesting that spike in transactions from the black swan event did not prompt any fundamental shift among big retail whales and/or miners.
Whales bought the bottom and accumulated over the summer
Finally, when we start to take a look at bona fide whale transactions — i.e., large-scale transactions of over 1,000 BTC — we notice one particularly interesting takeaway.
Aside from the transaction spike in March and a subsequent spike as BTC approached the psychological $10,000 level again in May, we can clearly see, in the chart below, an upward trend in the number of transactions of between 1,000 and 5,000 BTC since the end of June. The number of transactions per day moved gradually up from June, even as the price of the foremost cryptocurrency consolidated.
This upward trend suggests the possibility that institutions and/or large players got busy accumulating BTC as economic stimulus measures from central banks spurred on the purchase of hard assets. However, because we cannot cleanly differentiate what actual activity took place from the number of transactions alone, this only remains a speculative possibility.
Interestingly, this trend does not continue with transactions in the 5,000–10,000 BTC range — the largest range we've tracked.
However, it is here that we notice, perhaps, the most interesting anomaly in the on-chain dataset. The number of transactions of between 5,000 and 10,000 BTC saw repeated spikes throughout the entire season of BTC price consolidation, from mid-May to the end of mid-July of this year.
The spikes in daily transactions of between 5,000 and 10,000 BTC lead us to two potential conclusions:
- Because we cannot differentiate between exchange transactions and non-exchange transactions, it is possible that one or more cryptocurrency exchanges — which hold extremely large amounts of BTC — were shuffling coins into various wallets for any multitude of reasons, most likely related to security.
- Alternatively, there is the possibility that large institutional players and big-money whales accumulated or distributed large sums of BTC during this consolidation period in the expectation that the price of the leading cryptocurrency would increase further or decrease.
The second option, particularly regarding the possibility of accumulation, would fit the narrative that has been in place since the COVID-19 pandemic wreaked havoc on global markets — namely, that institutional investors like Paul Tudor Jones and billion-dollar companies like MicroStrategy have been allocating wealth into BTC as a hedge against fiat money inflation.
The possibility that big-money players and institutions accumulated BTC over the summer can also be seen when we examine the percentage of total BTC transactions that are of 100 BTC or more. These data clearly show not only the deviation from the COVID-related crash in March but also a deviation from mid-June until August — highlighting the possibility that whales took this time to accumulate in the expectation that prices would increase.
However, the percentage of total transactions that are of 100 BTC or more also includes what we would consider to be medium-sized players, such as Bitcoin miners. In order to try to look at institutional investors in particular, we can narrow the data to look at the percentage of total transactions of over 1,000 BTC.
When we examine this on-chain data, we may draw similar conclusions.
The percentage of these large transactions increased immediately following the bottom of March's price crash and again increased from mid-June until the present. This may potentially be the most interesting note of all, as we can see a new year-to-date high in the share of these large transactions into the beginning of August.
After analyzing the on-chain data for BTC transactions throughout 2020, we may draw certain speculative conclusions.
Firstly, it appears that small retail investors were "shaken out," somewhat, during the COVID-related panic in March and subsequently took a wait-and-see approach once the price of BTC returned to its pre-crash levels in May.
Secondly, medium-sized BTC transactions decreased immediately after the crash in March and in tandem with Bitcoin's third block-reward halving. However, the number of these transactions — which are presumably from larger retail players and miners — steadily increased throughout the summer while the price of BTC remained flat. This implies that some accumulation took place from medium-sized market participants during this period of consolidation.
Large players in the Bitcoin space became very active when the price of BTC crashed. This suggests that whales and/or institutional investors "bought the dip." Furthermore, large transactions have been steadily increasing throughout the summer, as the price of BTC consolidated — highlighting the possibility that accumulation took place.
Finally, the largest players in the BTC space became most active during BTC price consolidation this summer. The data also highlights the possibility that they accumulated heavily with the expectation that BTC would increase in value in the long term.
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Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.
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