2019 February 25 - Volume.3 Issue.7

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2019 February 25 - Volume.3 Issue.7

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Bitcoin Retail Investor Holdings Continue Incremental Growth

While institutions may still remain on the sidelines, on-chain data for Bitcoin addresses shows that retail investor attitudes remains strong and in fact a key growing group in supply holdings. Although still representing a small portion of circulating supply, at least in on-chain terms, month-on-month for addresses holding 1 to 10 Bitcoins have always shown a positive increase in holdings with 2019 already seeing an uptick in growth after petering out last year compared to previous years that saw a 35% annual increase on average.


Addresses holding anywhere between 1 and 10 Bitcoins now represent nearly 10% of the circulating supply. These addresses according to data crunching by Diar have seen a positive number of growth year-on-year (see chart).

Despite the bubble burst, Bitcoin holdings in these addresses increased by 5% since Bitcoin's peak. Since January 2017 to date, the most popular band of address holdings have seen an increase of 38% with an average of 35% increase year-on-year since 2015.

And while 2018 saw a very small increase compared to previous years, a tiny 0.7%, things have quickly started to pick up again with a 3% increase in addresses holding Bitcoins within the 1-10BTC band since the start of the year.

Rounded figures in smaller addresses unlikely to be those of exchanges and cold-storage do show retail investor attitudes. And should such a trend continue, retail investor holdings could mark a significant amount of supply found on-chain within the next few years alone, currently valued at just over $6Bn.

|| SAVE SOME BITCOIN

Telling is the very fact that 91% of addresses that have been discriminatorily rounded up to the nearest Bitcoin have never made an outgoing transaction (see chart). And on the flip-side those who have made an outgoing transfer left behind a neat number of Bitcoins.

97% of addresses holding either 5 or 10 Bitcoins have not moved since landing into wallets. Still, this is only a small representation of 2% of Bitcoins. But the growth has been fairly evident although unlikely to have the ability to move markets.

|| EVEN STEVEN SELL PRESSURES

While the numbers highlight a real zeal by retail investors to hold onto some Bitcoin, the majority of holdings have been in safekeeping since below current prices alleviating possible downward price pressures.

55% of addresses holding exactly 5 Bitcoins (approx. 60k Bitcoins) been placed in wallets before September 2017 when the month averaged at $4000/BTC. The number is a close 49% for addresses with exactly 10BTC (88k Bitcoins).

That also means that approximately 75k Bitcoins in these "investment-type addresses" where allocated, not necessarily purchased, while Bitcoin was trading above current levels.

|| DEPENDS ON WHICH WAY YOU LOOK AT IT

A majority of circulating supply, 48%, that sit in addresses between 10 and 1000BTC have seen a decline in holdings since last year (see chart).

Whilst these addresses could very well belong to exchanges, the underlying trend is quite clearly shifting downwards for larger addresses. And though slow, this could be an indication of a better wealth distribution of bitcoins.

It also could indicate an exodus of larger investors and lack of interest from new big money also.

# of Addresses Holding 1-10 BTC Increases 6% vs. Feb 2018


Zero Outgoing Txs for 91% of Addresses with Rounded BTC (# of BTC)**


Notes: ** Addresses with Rounded Full Bitcoins - Addresses Including Dust Below


Distribution for 1-10 Bitcoins


Addresses Holding Between 100-1k BTC See 6% Decrease


Sources: Blockchair, Blockchain, Diar Calculations, Oxt, Coinmetrics


Major Cryptocurrency Miners Banking on Empty Blocks

While still a very negligible portion of total revenues, cryptocurrency miners on major blockchains have exceeded $300Mn in earnings from empty block mining. Despite a year-on-year decline in the number of empty blocks being solved for Bitcoin, miners have now exceeded $100Mn in revenue since 2012 providing no real value to the network.


Miner revenues across the most popular Proof-of-Work (PoW) blockchains have no earned in excess of $21Bn since the start of each network. Bitcoin, of course, accounts for more than half of that alone (see chart).

|| IMPROVEMENTS MADE

Bitcoin's data broadcasting systems have improved exponentially over the past few years that have also allowed for more transactions to enter an actual block rather than running on empty. The number of empty blocks have halved since 2016, and decreased by almost 20% in 2018 versus 2017.

This also gives some more clues as to the reasons behind the low fee's Bitcoin is currently enjoying - more blocks are finding transactions (Diar, 11 February). And while fees today might be little incentive for miners, as the reward continues to face halving every Satoshi will eventually matter.

Bitcoin Cash having less transaction volume has found itself with an additional 3335 empty blocks since its fork from Bitcoin in August 2017.

|| SOLVING FOR ZERO

The value that is being rewarded for empty blocks should strike alarm bells as revenues across major networks have earned miners for Proof-of-Nothing with $335Mn - the equivalent of $5Mn per month.

|| LITECOIN HEAVY IN THE POCKETS

Litecoin has doled out the most to miners for "solving" empty blocks to the tune on $125Mn. Ethereum, $113Mn and Bitcoin just crept over the $100Mn mark this month.

Ethereum miners earned over $67Mn for empty blocks in 2017 - by far the greatest reward for a full year across all blockchains. But Ethereum has made the most progress with a 95% drop in empty blocks mined in 2018 versus 2017 (see chart).

Progress in less empty blocks aside, the data isn't flattering. Even slightly side-stepping energy consumption discussions, this specific activity is a highly inefficient part of Proof-of-Work blockchain networks that are rewarding resource expenditure for literally nothing.

An increase in transactions, which indeed has been seen as of late, will likely be the key point in addressing such matters (Diar, 11 February).

Miner Revenues on Major Blockchains Surpass $21Bn*


$42Mn Earned by Bitcoin Miners for Empty Blocks Last Year


98% Drop in Empty Blocks Versus 2016 Peak For Ethereum

Sources: CoinMetrics, Blockchair. Notes: *ZEC Founder Reward Included in Total


Blockchain Focused VCs Setup Intertwined Financial Infrastructure

In the midst of a bubble burst last year, venture capital seemed more persuaded to invest in the cryptocurrency industry. While the 'big bucks' from major blockchain-focused investors went to US-based exchanges, over $1.6Bn has been invested in companies that within the space with 2019 showing no signs of abating.


2018 may have been a bloodbath for cryptocurrencies but not so for blockchain-led operations having secured over $1.6Bn for projects that have garnered attention by their very backers (see table). The industry as a whole had secured over $3.9Bn up till October 2018, moving the tally upwards of $5Bn accounting for capital raised since (Diar, 1 October 2018).

But a look into the investments made by blockchain and cryptocurrency geared VCs shows the very intertwined nature the investors are hoping will brew.

|| INFRASTRUCTURE SPEND

Exchanges Coinbase, Circle and Kraken have raised over $500Mn between them long after the bubble burst.

Kraken itself just secured 100Mn last month and made a quick move to purchase Crypto Facilities, a UK based derivatives exchange aiming to set itself apart from cryptocurrency exchange infrastructure out of the United States. But there are other outfits too gunning for that very market - Bakkt, ErisX and Seed CX who have raised over $230Mn for their platforms.

While the exchanges are selling tokens that have little use case to date, this would have unlikely been the primary driver for the millions being invested.

Evident is the spend on blockchain-based financial tools and the potential future of institutional grade offerings of tokenized securities, derivative trading, on-chain financial products, stablecoins, blockchain analysis and custody solutions.

|| READY, SET, WAIT

The startling fact isn't only how much money has been raised, but the valuations that now run into the Billions of dollars for businesses, for the most part, far from commercial grade readiness, notwithstanding the murky regulations that remain to cloud the whole space. And 2019 has already kicked off with upwards of $200Mn in capital raised.

2018/19 Select VC Cryptocurrency & Blockchain Investments ($Mn)

wdt_ID Company Raised Noteable Investors Month
1 Coinbase 321.3 Tiger Global Dec-2018
2 Bakkt 183 Pantera, Galaxy Dec-2018
3 Dfinity 163 A16z, Polychain Aug-2018
4 Circle 110 Bitmain May-2018
5 Seba Crypto 104 Black River Sep-2018
6 Kraken 100 DCG Jan-2019
7 Ledger 75 Draper Jan-2018
8 Paxos 65 RRE Ventures May-2018
9 Figure 50 DCM May-2018
10 Oasis Labs 45 a16z crypto Jul-2018


Coinbase Adds XRP in Latest Exchange Listing

Last December saw Coinbase release a list of 31 potential candidate tokens to be listed on its exchange, and this week saw the first addition of the year, XRP (Diar, 10 December 2018).

|| WELL....OF COURSE XRP

The addition hardly comes as a surprise considering that the exchange has added, albeit slowly, all the cryptocurrencies that their own investor Digital Currency Group (DCG) has backed (see table).


wdt_ID Token DCG Blockchain Pantera
1 Ripple + + +
3 Zcash + +
4 Eth. Classic +
5 EOS +
6 Augur +


The potential addition of XRP has been a contentious topic within the cryptocurrency industry for the possibility of the token being labeled as a security.

Taking a cue from DCG, whose institutional arm Grayscale created a fund for the cryptocurrency last year may have been evidence enough that legal counsel had assessed otherwise.

And as far as the exchange's own mission of an 'Open Financial System' is concerned, the addition of XRP falls in line with the hopes of addressing the remittance market (Diar, 26 March 2018).

|| BUT...AND THERE'S A BIG XRP

However, Coinbase has now clearly abandoned one of their own pillars for the potential listing of a cryptocurrency. In their 'Digital Asset Framework' that outlines requirements to be listed, the exchange states that "the ownership stake retained by the team is a minority stake," a fact far from reality as Ripple holds nearly 60% of the supply in escrow with a release schedule.

Binance Delivers to Fetch AI as Public Cheer Minority Holdings

Investors Spend $6Mn For Smallest Portion of Tokens - 6%


While the Initial Coin Offerings market may have petered out, the seed is very well planted in the minds of high-risk traders on popular exchange Binance.

What has changed seems to be an even higher level of company hoarding of tokens only giving the public 6% while founders, advisors, and supply earmarked for "future release" hold the lions share (see chart).

In the short span of under 12 minutes "Machine Learning and Artificial Intelligence" blockchain ledger Fetch.AI raised in excess of $6Mn on Binance's token crowdsourcing Launchpad.

|| TORRENTS OF DREAMS

Clearly investors have learnt very little from the bubble burst and continue to pile on millions into products that are far from a reality after seeing the success of the Bittorrent sale on the popular exchange, and the after-effect that saw the token's price shoot up 900% within a week and still trading double the token sale price.

Concerning is the very fact that FetchAI have already conducted previous seed round and private sales raising over $3Mn in the last 18-Months, 85% of which have already been spent by the team now propped up by its latest public sale. The public didn't get much of a deal either paying double what initial investors parted with.

Even more concerning and cause for alarm, one would imagine, is a quick glance over the token distribution that leaves current investors with a tiny slice of the pie with founders, advisors and the foundation holding onto 50% of future supply.

Binance for its part did disclose all this information prior to the sale.

Templum Shifts to Private Blockchain
Blockchain Capital backed Templum that has raised just over $12Mn and launched the first tokenized real estate security asset on Ethereum has decided to pivot from the 'world's super computer' to Nasdaq-backed private blockchain provider Symbiont. Symbiont has already worked with several banks to offer syndicated loans using blockchain technology and gearing to address other parts of the financial system. But with an ever competitive enterprise blockchain landscape, Templum will be waiting for an interoperable solutions - otherwise, why use a blockchain at all if not to open liquidity for tradable assets across global markets.
Brazilian Banco BTG Sets Sight on Real Estate Token
Following the lead of tokenized secuirty platforms Templum and Harbor who last year successfully completed the tokenization of two real estate properties raising nearly $40Mn, enters the largest investment bank in Brazil to do the same for distressed assets in the South American nation. Considering what the bank itself has deemed as a high-risk asset class, BTG will be offering market-making services injecting capital in order to guarantee liquidity on what promises a whopping return of 15-20%. Speaking to Bloomberg, Gustavo Roxo, the bank’s chief technology officer believes that the crypto strategy will have appeal and be more cost efficient.
University Endowments Teardrop Cash in Crypto
Major endowment funds from universities have recently been adding small amounts of cash in investment in cryptocurrency funds. Last year saw the likes of Harvard, MIT and Stanford all part with a little bit of money. The latest comes out of Michigan who invested $3Mn last year into Andreessen Horowitz A16Z Crypto fund.  While headlines loved the $12Bn endowment fund looking to venture it's way into Crypto, a 1.8% investment from it's total 2018 funding is still quite an insignificant sum. Still, it does indicate the appetite by rich endowments who have inherently invested in global assets to part some of their cash into a technology still not yet proven.

Deconomy 2019
Seoul, South Korea


Diar is pleased to be the principal media partner for the upcoming Deconomy conference in Seoul, South Korea on April 4-5.

With a speaker line-up from Andreas Antonopoulos, Vitalik Buterin, Nouriel Roubini, as well as Changpeng Zhao, Joseph Lubin, Tim Swanson, Sara Feenan and Colin Platt, the conference is set to be filled with important discussions and good debate about the future direction of the cryptocurrency industry.

We look forward to seeing you.


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