By According to a recent study by the analytics firm Chainalysis, an increasing number of Bitcoins are stored in crypto wallets belonging to active individual users rather than institutional investors and companies. Chainalysis found that approximately 4.8 million Bitcoin were held in wallets with a certain level of activity which indicated that the owners of the wallets were individual users as opposed to institutional investors and companies. These so-called speculative coins represent approximately 32% of the total cryptocurrency supply, excluding lost coins.
At the end of 2017, the number of coins held by individuals was only 3.8 million Bitcoin which represented approximately 26% of the total cryptocurrency supply. There is thus a marked increase in personal Bitcoin holdings by individual users up from 26% last year to 32% at present, representing a 6% growth in approximately 9 months. The number of personal holdings by individuals reached its peak in July 2018 with 4.95 million Bitcoin which represented 33% of the total cryptocurrency supply being held in the hands of individuals.
Implications of Increased Coin Holding
The increase in personal holdings by individuals is a positive indication for the cryptocurrency and digital asset sectors in that it shows that the first challenge to the mainstream adoption of cryptocurrency, that of getting consumers to use cryptocurrency, is already being met.
Due to the extreme volatility of the crypto markets it is unsurprising that users of Bitcoin, both institutional investors and individuals, continue to hold coins as opposed to transacting with them. This is evident by the 6.3 billion coins that are held as inactive investments in accounts that have had no activity in more than a year. The drop in the supply and extreme appreciation of cryptocurrency over the past decade has understandably led to a market which encourages owners of cryptocurrency to hold rather than to buy or sell. This feature is predicted to change during the next bull market and it is during that time that an increase in transactions is expected to take place.
Stabilizing the Market
The distribution of Bitcoin and cryptocurrency wealth has become slightly more diverse according to Chainalysis economist Philip Gradwell. By diversifying holdings in the market, the cryptocurrency sector is thought to be stabilizing. This is due to the fact that over the past several months long-term investors have sold Bitcoin to new speculators. Although half of the available Bitcoin is still held by institutional investors, this amount has become “somewhat less concentrated” according to Gradwell.
Chainalysis has also reported that there has been an increase in the number of Bitcoin held by exchange platforms and other service providers as well as an increase in the amount of Bitcoin added to personal wallets. Evidently, the number of individuals using self-custody solutions to actively transact with cryptocurrencies is increasing at a faster rate than that of speculators. According to Chainalysis economist Kimberly Grauer, the cryptocurrency market is stabilizing in that there are less dramatic fluctuations in wealth between investment and transactional accounts, which is a sign of “a maturing market with less volatility”.
The maturation of the cryptocurrency market has also led to predictions that there will be an increase in the growth of cryptocurrency being traded. A recent study by Satis Group has predicted that cryptocurrency trading volumes will increase by over 50% during 2019.
Do you believe the market is stabilizing? Is it time to stop holding onto your cryptocurrency and start transacting? Give us your thoughts in the comments below.
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