Throughout this year, during a 69 percent correction, only 25 percent of Bitcoin were moved between addresses, suggesting that 75 percent of Bitcoin had not changed hands.
That is nearly a 58 percent decline in Bitcoin user activity since 2017, during a period in which BTC surged to a new all-time high at $20,000 and the cryptocurrency market reached a valuation of $800 billion.
Analysts expected a higher percentage of Bitcoin in circulation to change hands throughout the past 11 months despite the bear market, given that many new investors have entered the market through alternative platforms such as the CBOE and CME Bitcoin futures markets.
The launch of the Bakkt Bitcoin futures market in December and the release of the Goldman Sachs and Morgan Stanley cryptocurrency derivative products are also expected to increase the user activity of crypto, growing the liquidity of the stagnant cryptocurrency market.
Speaking to Bloomberg, Coin Metrics co-founder Nic Carter stated that the noticeable decline in the user activity of Bitcoin demonstrates the market is still in recession. Less new investors have entered the market since late 2017.
“It tells me we are still in a Bitcoin recession,” Carter said, adding that a dip in user activity enables the evaluation of the actual liquidity of the asset. “I think it helps us assess ‘true liquidity’ in the idealized, global order book sense. To some degree, I think it lets you roughly calibrate the effect of future inflows.”
In bear markets, Carter emphasized that less than 30 percent of BTC in circulation are available to the public through cryptocurrency exchanges, as the vast majority of investors tend to hold onto their long-term investments.
Still, according to cryptocurrency market data providers, the daily trading volume of BTC is estimated to be around $4 billion. At its peak in January, the volume of BTC neared $10 billion, led by leading markets such as Japan and South Korea.
As such, DA Davidson & Co. institutional equity director Gil Luria noted that BTC does not have a liquidity issue, as the $4 billion daily trading volume allows any investor to liquidate an entire position in one trading day.
Cryptocurrency exchanges operate 24 hours a day and seven days a week, without closing and opening periods dissimilar to stock markets and traditional exchanges. Hence, the $4 billion daily trading volume is more meaningful if the fact that the cryptocurrency exchange market operates without downtime is considered.
“That does not mean there is a liquidity issue. Four billion of volume a day means almost any investor in Bitcoin can liquidate their entire position within one trading day,” Luria said.
This year, Bitcoin suffered one of its worst correction in recent years, the fourth-worst crash in the past nine years.
The decision of many investors in the market to hold onto their Bitcoin investments regardless of a 69 percent drop in price demonstrates confidence towards the long-term price trend of the dominant cryptocurrency, and more importantly, that investors are considering crypto as a long-term investment rather than a short-term position.
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Last modified: March 4, 2021 3:06 PM