2019 May 28 - Volume.3 Issue.16

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2019 May 28 - Volume.3 Issue.16

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'Big Money' Accumulates Bitcoin Driving Bull Market Return

Last time Bitcoin saw current price levels was on its way downwards in August 2018. But the landscape of Bitcoin supply holdings has shifted ever since the most recent bottom was met this past Christmas. The number of addresses holding between 1000 and 10K Bitcoins each has seen a steep rise with a whopping accumulation of 450,000 Bitcoins in less than 9-months.


Over 26% of circulating supply, $36Bn worth of Bitcoin, now sit in addresses that have a balance of 1000-10k BTC. In August 2018 when Bitcoin was also at $8000, these 'Firm Size' addresses held under 20% of the circulating supply showing a sharp accumulation of nearly 7% in less than a year.

With that said, a surge in the 1-10k Bitcoin address bracket in December 2018 was likely the result of Coinbase shifting approximately 5% of supply into new cold storage security facilities.

At the time, Coinbase moved 856,000 Bitcoins across 107 addresses. These now stand at 11% less with 760,000 Bitcoins in 96 addresses. Diar has excluded these Bitcoins from this analysis.

|| BOTTOM BUY-IN

The number of Bitcoins held by this 'Firm' size bracket, seeing as the minimum address now accounts for multi-millions, surged in December 2018 when the largest cryptocurrency met its most recent bottom of $3200. Since December 2018, in a short six month period, Bitcoin accumulation has seen over 1.2Mn added to this bracket, by and far the largest growth across all address groupings (see chart 1).

And while accounting for potential Coinbase-held coins brings the tally down, the 450k that has been added remains leaps and bounds of growth against every other segment.

|| BILLIONS ADDED

These addresses stand today at $6Bn more (excluding Coinbase coins) than the last time Bitcoin was at $8000 in August 2018. And these are not stale addresses or lost bitcoin as most have been active in the past three months.

Since the start of 2019, over 100K Bitcoins have found their way into this bracket. And while this only accounts for 40% of newly minted Bitcoins this year, there has been a 10% increase in the number of addresses. Whether or not these are multiple entities or for the sake of security management is, of course, an unknown.

But what is notable is the long-term trend that on-chain data shows since the start of the bear market in January 2018. Since then, 955k Bitcoins have been minted through inflation as a reward to miners. For the same period, firm size addresses have slurped up half the new market supply.

|| RETAIL STEADY

Retail size wallets between 0-100 Bitcoins have also seen a 126k increase in Bitcoins and a continuous upward trend to the number of addresses (Diar, 25 February). Overall, these addresses hold, as of date, 38% of Bitcoins circulating supply (see chart 4). Accounting for inflation, however, this segment remains fairly stable and unlikely the driving cause of recent price spikes.

|| SUPPLY SQUEEZE ON TRADING VENUES?

Bitcoins held by major addresses - mostly of which are exchanges - have seen an exodus of over 300K Bitcoins since the start of 2018. At peak, these addresses held 750,000 more Bitcoins than they do today, 21% of the total circulating supply versus 16% today (see chart 4).

Had Coinbase wallets before its security migration fell in these higher brackets, then it would effectively be a wash despite seeing nearly 100k Bitcoins out of their cold storage.

But with trading volumes hitting new highs this year, recent surges in prices could have added to the effect in part been due to the now restrained supply on exchanges as far as on-chain data can tell (Diar, 21 May).

BTC at $8K: Number of Bitcoins Added/Lost by Band  ( !See Note )


Period NoteAug-2018 vs May-2019 Balances have been assessed in order to establish the landscape of address holdings the last time Bitcoin was at these price levels. The numbers represent the difference, not total holding. 1-10K BTC: Excludes 760,000 Bitcoins likely held by Coinbase.


BTC Addresses between 1-10K Since Nov 2017


26% Increase in # of Addresses with 1-10k BTC Since Bear Market Start


Bitcoin Address Holding Distribution


Demographic Challenges for Facebook 'Cryptocurrency'

Details continue trickling out of Menlo Park on Facebook's cryptocurrency initiative internally dubbed as 'Globalcoin'. The social media behemoth, however, faces an aging user base whose apt to learn about cryptocurrency unlikely. On the flip side, those who are adept to current tech have less purchasing power. Meanwhile, a 'permissioned' blockchain without far-reaching partnerships would defeat the purpose of a global plan, as would focusing on developed markets only.


Many presumed the beginning of the end for Facebook after a massive data breach by Cambridge Analytica last year who collected user’s information en masse. A poll conducted by Reuters, however, challenges the very notion that anyone actually cared with the social media giant’s userbase remaining intact.

The ownership of data by corporates using it to profit is just one of the anathemas to the decentralized ideology. This point – and effectively the nature of decentralization - is not one shared by the majority of the 2 Billion users on the social media platform who is now gearing up to address payments and remittances through a cryptocurrency project codenamed ‘Globalcoin’.

|| WOKE AND BROKE

Facebook will be facing an uphill battle on multiple fronts, primarily starting from an aging user base whose knowledge of cryptocurrency likely to be near nil. Data gathered by the Pew Research Center shows that Facebook has lost its dominance within the teen market against other platforms. Only 50% of US teens use Facebook in comparison to 85% that use YouTube. And that number is in decline against the likes of SnapChat.

How much economic activity such a project can drive is also questionable. The small userbase of young people who are likely to be abreast with current technological developments has a fairly weak purchasing power. “Lower-income teens are far more likely than those from higher-income households to say Facebook is the online platform they use most often,” says Pew.

|| ISN’T MY GRANDDAUGHTER A CUTIE…

Numbers aren’t much better on the age front past teens either. Less than half of Facebook’s users are under 35 years old – including the aforementioned teens. And on the other side of the spectrum is the number of retiree’s who have flocked to the platform seeing the age group double since 2012.

|| CRYPTO IS A NAUGHTY WORD

Educating 25% of the world’s population about current cryptocurrency infrastructure that requires private-key management and the glaring reminder of the possible ultimate loss of funds is also unlikely as it would result in the project’s near instant failure.

For any real success, the integration of custody and settlement finality would have to be a seamless operation that users have grown accustomed too - a feature current user-facing blockchain infrastructure fails at for the most part.

|| ITS BUSINESS, NOT PERSONAL (AKA BLOCKCHAIN, NOT BITCOIN)

The adoption of a Blockchain would then be one sought to bring in other operators with no single entity controlling the network and feeding into multiple streamlined off-ramps from settlement finality to payments, rather than giving users the benefit (and risks) of self-custody.

Facebook User Age Distribution


Facebook User Distribution by Country (Mn)


Source: Statista


The social media giant has reportedly been speaking to remittance-focused Western Union as well as the Bank of England and the US Treasury. Talks with Coinbase and Gemini have also supposedly taken place, according to the Financial Times.

Despite the “name dropping” of old finance and new crypto, ‘Globalcoin’ would need banking partnerships for settlement finality should it wish to have a user-friendly experience for any adoption hopes from both consumers and merchants.

|| PLURAL – GLOBALCOIN-S

With only 10% of Facebook’s user base in the US, the most likely scenario would be to address as many fiat currencies as possible.

Facebook will likely be eyeing countries whose financial infrastructure is lacking, much like the company has done in India through their messaging service WhatsApp Pay. FT figures place WhatsApp payment flows at a mere $2Bn per month a year into its pilot launch. And India is one of the top 5 markets for Facebook alongside the US, Brazil, Mexico, and Indonesia.

Ultimately, however, the cryptocurrency, should it be deemed as such, would require to break down social conceptions of money that have been tied to the hip to traditional financial infrastructure, only recently also veering off into ‘neobanks’ like Revolut, Monzo and Goldman Sachs’ Marcus.


IBan
Helsinki-based P2P exchange LocalBitcoins has cut off Persian users likely due to the ongoing financial sanctions imposed by the US, EU, and the UN. Traders in Iran now how one less option after being cut off from exchanges worldwide from US-based Bittrex to an under-regulated Binance at the end of last year (Diar, 19 November 2018). There are some options still on the table that are welcoming, however. Bisq does not require any KYC and HodlHodl has welcomed users with a localized website. Tehran attitude with crypto has been in limbo. A year ago the Central Bank banned crypto dealings, but have since trimmed down the battlefront against payments only.
Copy/Paste Utility Token Bill
Governor of the US State of Montana has signed a Bill to exempt 'Utility Tokens' from being classified as securities so long as - well - they're not securities. Aided by a list of prerequisites that resemble 'page 2 of the SEC rulebook' the issuers of and the tokens themselves must fit the 'consumptive purpose' test. The token must provide actual utility within 180-days, meaning, every ERC20 token that has so far been minted would fail as it has taken years for the handful of projects to go live after their initial sale. This isn't the first type of bill to appear of course. Neighbor-state Wyoming put Bills on the table last year that resemble the same nature (Diar, 19 March 2018).
$BRICS
Russian Central Bank governor Elvira Nabiullina has stated that Moscow is looking into a proposal for a gold-backed cryptocurrency for settlement purposes. However, Ms Nabiullina remains of the mind that fiat-settlement systems must take priority, especially within the Eurasian Economic Union (EAEU). Russia might look to spearhead independent systems away from Swift that have been easily swayed by US pressure. And a gold-backed cryptocurrency amongst the BRICS nations isn't all that far suspect as the developing countries have all been hoarding gold as of late. Combined, the 5 nations hold more than 4.5k tonnes of gold only bested by US reserves.
€BD€
Central Bank Digital Currency (CBDC) has found a vocal advocate at the table of the Bank for International Settlement who has been thus far lukewarm to the prospect (Diar, 19 November 2018). In a speech last month in Washington, Mr Vitas Vasiliauskas, Chairman of the Board of the Bank of Lithuania became vocal at the net positives CBDC can have. Most importantly, the prospect of a retail CBDC has not been discounted by the European official stating that an "interest-bearing retail CBDC could potentially improve the transmission of monetary policy." But, of course, not with the warning of possible financial institution harm caused by deposit declines.

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