2018 September 17 - Volume.2 Issue.37

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2018 September 17 - Volume.2 Issue.37

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Circulating Bitcoin Majority Remain Sequestered to Investment Wallets

Over 55% of Bitcoins currently sit in wallets that have balances upwards of 200 coins – worth over $1Mn at any point in time within the last 11 months when the price of Bitcoin breached the $5k mark. And impressively, 1/3 of the Bitcoins that are sitting in these wallets, have never made an outgoing transaction, which, outside of exchange wallets could indicate either lost private keys, lowering real supply, or a very strong resolve by cryptocurrency believers.


Long-term investors are keeping the faith in the king of cryptocurrencies despite the bears market in 2018. Data crunching by Diar shows that the majority of circulating Bitcoins, 55%, are sitting in wallets that are valued north of $1.3Mn at current prices.

At pixel time, over 87% of Bitcoins are stored in wallets that are above 10 Bitcoins ($60K+) – the total value just shy of $100Bn of the total market capitalization. These coins sit in only 0.7% of all Bitcoin addresses.

Accounting for wallets with over 100 coins ($640K+), this number drops to under 0.1% of all addresses, but represent 62% of all outstanding Bitcoins.

The top-heavy ownership of Bitcoins of course does not indicate a select number of wealthy individuals solely however, as the largest wallets are owned by cryptocurrency exchanges that are holding the coins on behalf of clients. In fact, 3.8% of the total bitcoin supply are currently sitting in the top 5 wallets that are known to be managed by major exchanges – approx. $4.2Bn in value.

|| BALLERS BE BALLING, HODLERS BE HODLING

An amazing 42% of Bitcoins held in such investment wallets (above 200 BTC) made no outgoing movement during the price peak in December 2017 - and sat in wallets before the markets saw the near $20k BTC. And 27% of these Bitcoin wallets have continued to add more coins to their stash since then.

|| TWO SIDES TO A BITCOIN TOO

An analysis earlier this year by blockchain analytics firm Chainalysis, however, places a whopping $30Bn Bitcoin sell off between December 2017 and April 2018. The report placed, back in April, 1/3 of Bitcoin supply in the concentrated hands of 1600 individuals. But there is a cherry on top for long-term investors. Chainalysis places the possibility of 30% of Bitcoin supply to be lost, and unmined. Diar recent analysis is inline with this estimate.

Bitcoin Wallets with No Outgoing Transactions at Price Peak


Note Well: The wallets may have never made an outgoing transaction since November 2017, however current balances reflect new wallets, as well as Bitcoins added to the wallets.

25% of total Bitcoins sit in wallets that were created before the Price Peak and have not made any outgoing transactions. Some wallets may be managed by exchanges.

Source: Bitinfocharts.com


Diar Bitcoin Distribution Estimates (21Mn BTC)

*Lost & Illiquid includes unmined Coins – Updated: 18 September 2018 - 12PM EEST


Venezuela, Argentina Outliers in Bitcoin Hedge Against Inflation

While cryptocurrency enthusiasts would like to position Bitcoin as the option against poor government monetary policy, backlash fears from authoritarian states, notoriously known from weak currencies, might pose a challenge to the on boarding of new adopters. Venezuela and Argentina, both suffering from high-inflation have seen upped trading volumes. But other countries have shown the opposite trend despite the dwindling purchasing power of their savings.


Inflation in Venezuela surpassed 50% per month for the first time in November 2016, which officially categorized the country as hyperinflationary. Since then, the situation has only continued to worsen. The economic situation of oil revenue dependent country first began to degrade when hydrocarbon prices began to drop in 2014. The country, having already defaulted from more than $50bn of government bonds is only one indicator of a poorly mismanaged political and economic system.

The annual inflation in Venezuela is now approximated to be 200,000%, while the International Monetary Fund (IMF) projected it might spike to 1,000,000% by end-2018 - similar to events that transpired in Germany during the 1920’s and Zimbabwe in the 2000’s.

In late August, Nicolás Maduro, Venezuela’s President, launched a new currency with the promised backing of oil supplies called the Petro, despite its non-existence in public hands. Caracas took to starting a new currency recently, which just three weeks in already has seen an inflation rate of 100%.

|| SUBSIDIZED BITCOINS

In a country with heavy capital controls, some citizens turned to cryptocurrency mining because of the virtually free electricity subsidized by the government. But the government had been cracking down on mining by arresting people for electricity theft. However, since January, mining has been pronounced legal by officials.

Trading bitcoin in Venezuela is limited to peer to peer escrow services such as LocalBitcoins. In November 2016 when the national currency first became hyperinflationary, the weekly volume on LocalBitcoins grew from $230,000 to about $3.1Mn today. Volumes have averaged a 19% increase month-on-month since then (see graph). Bitcoin trading volumes peaked in Venezuela in April 2018 when they reached more than $19.2Mn.

|| BITCOIN GOES FURTHER SOUTH

While Venezuela has been experiencing the highest inflation levels, it is far from the only country dealing with the same phenomenon. Argentina, Egypt and Iran have all experienced inflation north of 30% in the past 5 years.

In Argentina, the inflation rate spiked most significantly from September 2015 to March 2016 when it grew from 13% to more than 40% during which time the volumes stayed relatively stable. The more recent inflation hike has been underway since June 2017 with inflation rates now approaching 35%. During this timeframe, the volumes have steadily grown as awareness of the asset-class came to much light in the past year.

|| MIDDLE EASTERN TREND?

Turkey has also been battling increasing inflation for the past two years. Inflation increased from 6% in April 2016 to nearly 18% today. In August when the Turkish lira slumped to a record low, volumes on the country’s largest exchanges grew by 112% (Diar, August 13). Although Turkey's Directorate of Religious Affairs has ruled Bitcoin is not appropriate according to Islam, the cryptocurrency remains unregulated by authorities and is fully legal. However, despite the short bursts of interest, Bitcoin volumes have continued to slide.

Egypt’s inflation rate grew from 9% in February 2016 all the way to 33% in July 2017. Throughout this time, the LocalBitcoins volumes remained insignificant. The largest growth in volumes happened from June 2017 to December 2017 when they grew from $147 to $43,000. Egypt’s Financial Supervisory Authority (EFSA) said in December that Bitcoin trading is illegal in the country. Egypt’s primary Islamic legislator said in January that bitcoin is prohibited under Islamic law. The volumes have since been in the downtrend.

While Bitcoin has been a valuable inflation hedge, especially in countries with unpredictable monetary policy, Venezuela is the first country where there is a considerable growth in traded volumes with the increased inflation suggesting that it is actually being used. Egypt and Iran have outright banned bitcoin, which is severely limiting its citizens’ exposure to it. The volumes in Argentina and Turkey remain insignificant despite the inflation hikes.

Venezuela Local Bitcoins Monthly Volumes Surge Alongside Inflation


2018 Argentina LocalBitcoins Volume Already 124%vs. 2016


Turkey LocalBitcoin Volumes Moves Opposite to Inflation...


... And Iran Follows Suit


Whilst Egypt Monthly Volumes Remain Insignificant


Crypto Exchanges Eye Tether Displacement with Stablecoin Backing

Gemini, which is regulated by the New York Department of Financial Services (NYDFS) announced last week that it had launched its own stablecoin, the Gemini dollar. Gemini had received permission from NYDFS to begin issuing the stablecoin, which is collateralized by frequently audited USD reserves.

The first regulated stablecoin has built-in BSA/AML and OFAC controls to prevent it from being used in connection with money laundering or terrorist financing. The advantage of using a regulated stablecoin as opposed to USD is the settlement speed. In June, Gemini’s largest competitor, Coinbase, invested in stablecoin called Reserve (see table).

|| EXCHANGE STABLECOIN WARS?...

In late August, Binance, OKEx, Huobi and Upbit (four of the ten largest exchanges) led an $32Mn investment round in new stablecoin Terra. Terra, a platform with a built-in cryptocurrency, Luna, will initially attempt to sustain a price-peg to the International Monetary Fund's SDR, a unit of account which consists of five currencies: U.S. dollar (42%), Euro (31%), Renminbi (11%), Japanese yen (8%), British pound (8%).

Terra is said to be partnering with 15 e-commerce services in Asia with 40 million existing customers. The stability of Terra will, supposedly, be achieved by overcollaterization of the underlying cryptocurrency Luna.

Whether or not any of the stablecoins, which have different mechanisms will be able to sustain pegs is yet to be seen in full effect. Yet, so far the Dai has indeed proved resilient being able to hold it's peg despite the Ethereum price crash, in which it is collateralized. 

Fiat & Stablecoin Options on Top Exchanges

wdt_ID Exchange Invested stablecoin Listed stablecoins Fiat pairs
1 Binance Terra Tether, TrueUSD None
2 OKEx Terra Tether None
3 Huobi Terra Tether None
4 Upbit Terra Tether, TrueUSD KRW
5 Gemini Gemini Dollar Gemini Dollar (GUSD) USD
6 Bitfinex Tether Tether, DAI None
7 Coinbase Reserve None USD, EUR, GBP
8 Kraken None Tether EUR, USD, CAD, JPY, GBP
9 Bittrex None Tether, TrueUSD USD
10 HitBTC None Tether, DAI, STASIS (EURS) None


Notes: *Paradex is a Decentralized Bulletin Board that is owned by Coinbase


Lightning Labs Looks to Ease User Experience with Light Client

Lightning Labs, one of the three development teams working on Bitcoin's second layer scaling solution released an updated version of their desktop wallet in a push to win over novice adopters. The light client will connect to a Bitcoin full node cluster hosted by Lightning Labs forgoing the need for new users to run their own full node as well as a lightning node.

Despite the Lightning Network growing in rapid speed since Blockstream made it's small move onto the Mainnet a short 6-months ago, setting-up and running a Lightning Node is not one for the faint hearted or those who lack considerable tech skillsets.

The updated app has looked to ease the process from language, to visual cues, to even including local fiat currencies as the default displaying option.


Lightning Network Products

wdt_ID Product Description Team
1 c-lightning Lightning Node Blockstream
2 lnd Lightning Node Lightning Labs
3 éclair Andriod Wallet Acinq
4 Strike Lightning Network Payment Processing Acinq
5 Liquid Bitcoin Sidechain for Instant Transfers Blockstream
6 Lightning App Light Client Wallet Lightning Labs

Morgan Stanley Joins Ranks of Major Banks Entering Crypto

Excluding Wells Fargo, the 5 largest US banks have all indicated now their interest in servicing client requests for trading Bitcoin and other cryptocurrencies.

While JP Morgan has held its cards very close to its chest, the largest bank has been creeping into the space ever so quietly this year, albeit with a heavier focus, at least in public, on blockchain projects.

It's highly unlikely that ‎270 Park Avenue‎ will twiddle their thumbs as its competitors all begin ramping up their collateral to clients for the trading of Bitcoin price-linked products.

|| LESS CUSTODY, LESS PROBLEMS?

Morgan Stanley is the latest to announce that it will soon offer client Bitcoin swaps tied to Bitcoin futures. The bank is also said to be setting up a trading desk for other digital asset derivatives.


Banks Creep Into Crypto

wdt_ID Bank name Product / Focus
1 JP Morgan Crypto Assets Division, Blockchain Projects
2 Bank of America Custody, Blockchain Patents
3 Citi Non-custodial Cryptocurrency Trading (Digital Asset Receipts)
4 Goldman Sachs Bitcoin Derivatives, Cryptocurrency Trading Desk
5 Morgan Stanley Bitcoin Swaps

European Central Bank: No Concrete Need for CBDC
In a letter addressed to the European Parliament, ECB President Mario Draghi stated that Brussels is not planning to launch a Central Bank Digital Currency as cash remains king in the EU. Mr Draghi also highlights that Distributed Ledger Technology is still not fit for such purposes. However, the Bank of England who has been researching a CBDC has already stated that DLT might not even be a pre-requisite.
Coinbase Upping Staff in The Big Apple
The cryptocurrency bear market has not slighted popular exchange Coinbase who is set to grow their New York operation to 150 employees - up from 20 today. The exchange has become very focused on expanding their institutional clientele through their custody and asset management products and has been on an onslaught of hiring talent from traditional financial outfits in 2018.
Canada: Bitcoin Trust Gets Mutal Fund Status
Canadian institutional and accredited investors can now reap tax benefits as First Block Capital Bitcoin Trust has officially received Mutual Fund status from the British Columbia Securities Commission and Ontario Securities Commission. The fund, first of its kind north of the US border, will be trading via NEO Connect, a relatively new platform and entrant in the stock exchange arena.
BitGo Trust Company Gets Go-Ahead From Regulators
Remember the Golden Rule? He who has the Bitcoin makes the rules - so it seems, at least, as more cryptocurrency operations vie custody services. Digital Currency Group backed custody solutions provider BitGo is the latest entrant into the regulated arena after gaining approval from South Dakota's Division of Banking to become a cryptocurrency custodian for institutions.

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