Coin Metrics’ State of the Network: Issue 5


Intro and Updates

Dear crypto data enthusiasts,

Welcome back to this week’s edition of Coin Metrics’ State of the Network, an unbiased, focused view of the crypto market informed by our own network (on-chain) and market data.

Two housekeeping items this week:

  1. Based on reader feedback, we have decided to publish State of the Network on Tuesday mornings EST. We hope you like this new publication time.
  2. Continuing on from last week, we would like to ask you to provide feedback on State of the Network and how we can do better. We’ve created a very brief and anonymous survey, and would appreciate your thoughts. You can complete the survey here.

Another busy week for Coin Metrics:

  • Yesterday, we published An Analysis of Kin’s On-Chain Activity. Check out this tweet thread for the highlights.
  • Coin Metrics API v2.0 was successfully promoted to “stable” on Tuesday, June 18th. Read the update here.
  • Coin Metrics transitioned all of its legacy Community data infrastructure over to our Pro infrastructure on Tuesday, June 18th. Read the announcement in this post.

As always, if you have any feedback or requests, don’t hesitate to reach out at [email protected]

Weekly Feature

Examining The First Week of Libra Testnet Data

After much anticipation, Facebook’s Libra has arrived. Although the Libra mainnet is not scheduled to launch until 2020, Facebook has already launched the Libra testnet. We analyzed early activity on the testnet to see how it is being used during its first week.

Testnet Libra is a stripped-down version of what mainnet will probably look like. For example, the smart contract capabilities aren’t available yet. Users can request new coins to be issued to them at no cost, and can transact with them. Transaction fees are burned instead of being collected by the validators. The testnet does not use real Libra (it uses fake Libra which is not worth real money), but still provides an interesting look into the potential of the network. 

Transactions

In order to serve as a global currency, Facebook is designing Libra to be scalable (i.e. high throughput). Libra is slated to handle more than 1,000 transactions per second at launch.

Less than 1 week after its launch, the Libra testnet is averaging 25,000 transactions a day, which puts it roughly on par with Dash and NEO, both above $1B in market cap. However, digging deeper, most transactions are token mints (anyone can request up to trillions of Libra Testnet tokens at no cost), as opposed to peer-to-peer token transfers: 

Peer-to-peer transfers are less frequent and have been gradually decreasing over the last week, averaging around 500 transfers per day in the past few days:

Users

Testnet transfers could be made by a small group of people, since they can be executed at no cost. One way to estimate how many people used the Libra testnet is to look at how many unique addresses sent any testnet Libra to another address. The amount of unique active addresses has also been declining, falling from over 750 on June 18th to a little over 250 a day as of June 23rd, as seen in the below chart. 

However, it’s important to remember that testnet activity is just a small sample of potential future activity. There are not as many reasons to transfer worthless testnet tokens other than for testing:

Libra is in a unique position in that it already has billions of potential users due to the huge size of the Facebook and WhatsApp user bases. However it is also relatively unique to have a group of large corporations governing a blockchain; Libra will also likely need to win users’ trust in their governance in order to one day have the billions of users that they hope for.

The Libra blockchain will be governed by a consortium of companies known as the Libra Association, who will run the validator nodes for the network. Libra is therefore a permissioned blockchain: validators need to be approved by the Libra Association. At least that is the plan initially; Facebook has stated that they plan to eventually transition Libra to a permissionless blockchain, but it remains to be seen whether they will be able to accomplish this while maintaining scalability. This differs from permissionless blockchains like Bitcoin and Ethereum where anyone can run a validator node without permission.

Permissioned blockchains can achieve significantly higher throughput than permissionless blockchains (at least for now – Ethereum and others are currently working to build next generation permissionless blockchains that achieve high scalability while maintaining decentralization). But permissioned blockchain validator nodes essentially have full control of the network, and can decide collectively to censor transactions or blacklist certain addresses. 

It remains to be seen exactly whether users will care about Libra’s relative lack of decentralization. Different blockchains have different levels of decentralization, and some high-market cap blockchains (such as XRP) are also permissioned. But ultimately, if Libra is to gain widespread user adoption, it will need to figure out how to win over users’ trust in both Facebook and the Libra Association.

We will continue monitoring Libra data and look forward to seeing how the project plays out over the coming months. If you are interested in accessing Libra testnet data, we plan to add it to our Network Data Pro package in the near future. Reach out to [email protected] for more info.

Network Data Insights

Summary Metrics

The markets rallied over the past week with Bitcoin leading the charge (19.77% week over week market cap growth) and Ethereum close behind (13.70% week over week growth). Interestingly, Ethereum led Bitcoin in terms of realized cap (which we define as the sum USD value based on the USD closing price on the day that a native unit last moved, i.e., last transacted, for all native units) growing 2.63% and 2.20% over the last week, respectively. This is possible because 67.6% of ETH supply has been active in the last year compared to 42.8% of BTC supply:

Mining Revenue

Mining revenue also grew over the past week. Bitcoin led the way in terms of overall mining revenue, with $139.36M. Zcash also had a good week, growing 24.14% since last week:  

Network Highlights

Gemini Dollar (GUSD) is on the decline. Gemini Dollar active addresses (which we define as the number of unique addresses that were active in the network either as a recipient or originator of a ledger change that day) have fallen below 100 per day, 10 times less than the next least active major stablecoin on the Ethereum chain, Paxos:

The number of BTC held by BitMEX dropped from 246k at its ATH in March this year to 207k currently. This marks the first time BTC supply held dropped significantly since the BCH fork in August 2017:

Market Data Insights

Prices are accurately reflecting the latest developments 

Two major developments occurred over the past week: the announcement of Libra, Facebook’s cryptocurrency, and further confirmation of the shift in the Fed’s future monetary policy as described in the latest Federal Open Market Committee’s statement. In both cases, the overall market has responded in a discerning manner. 

In response to the latest macroeconomic developments, assets that can lay some claim to being a store-of-value experienced strong gains, including Bitcoin (+19%), Ethereum (+13%), ZCash (+13%), Monero (+21%), and Binance Coin (13%). Facebook’s announcement also contributed to these gains, as these assets also operate in areas that Libra will avoid, so they can reap the benefits of increased exposure without increased competition from Facebook. 

Most other assets, however, were flat for the week or declined in value, including EOS (0%), Stellar (-4%), Cardano (+3%), Basic Attention Token (-4%), and several others. Although the scope of Libra’s use cases are not yet well-defined, there is the possibility that it could compete in the narrower domains that several of the smaller assets are operating in. 

Bitcoin outperformed the majority of CM’s coverage universe:

CM Bletchley Indexes (CMBI) Insights

Weekly Price Change

Insights

As has been the case recently, this last week, Bitcoin continued to lead the market and outperform most other assets. As is often the case, once Bitcoin starts outperforming there is a significant rush to the king of crypto and the rest of the market falters. In particular, lower cap and less liquid assets suffer the most as investors sell into Bitcoin as to not miss out on Bitcoin’s run. 

This can be seen below where the Bletchley 10 and Total have performed the best (with 65% and 59% Bitcoin respectively) and the Bletchley 40 which is comprised of less liquid alt coins performed the worst.

Subscribe and Past Issues

If you’d like to get State of the Network in your inbox, please subscribe here. You can see previous issues of State of the Network here.

Check out the Coin Metrics Blog for more in depth research and analysis.

Coin Metrics’ State of the Network: Issue 4

Intro and Updates

Dear crypto data enthusiasts,

Welcome back to this week’s edition of Coin Metrics’ State of the Network, an unbiased, focused view of the crypto market informed by our own network (on-chain) and market data.

This week, we would like to ask you to provide feedback on State of the Network and how we can improve. We’ve created a very brief and anonymous survey, and would appreciate your thoughts. You can complete the survey here.

Another busy week for Coin Metrics:

  • Released the updated version of the CM Reference Rates Methodology, adding nine new assets to the Coverage Universe. Here is our blog post about the release.
  • Earlier today, we announced a partnership with SMA to provide institutional grade crypto sentiment data. You can read the press release here.
  • A reminder that the Coin Metrics API v2.0 will be promoted to “stable” tomorrow (Tuesday, June 18th), resulting in breaking changes. Read the transition details here.
  • A reminder that Coin Metrics will be transitioning all of its legacy Community data infrastructure over to our Pro infrastructure tomorrow (Tuesday, June 18th). This will include the launch of a new API and the eventual shutdown of the existing Community API. Refer to the Community Upgrades section of this post for more information.

As always, if you have any feedback or requests, don’t hesitate to reach out at [email protected]

Weekly Feature

Tether’s Lead Grows as Facebook Looms

The stablecoin wars are upon us. There are now at least seven stablecoins with at least $25 million USD in daily transfer value, with new coins being announced at an increasingly rapid pace. None loom larger than Facebook’s new cryptocurrency, codenamed “Libra.” Poised to launch in 2020, Libra is likely to be used primarily for payments and is rumored to be a stablecoin (although it is yet to be confirmed).  

But it will be entering a crowded market, that as of today is still dominated by Tether. We compared data across seven stablecoins (USDT, USDT-ETH, DAI, PAX, GUSD, TUSD, and USDC), to examine trends over the last 6 months and investigate stablecoin market share.

Tether’s Market Share

Tether’s dominance is trending upwards, with 83.69% of active addresses and 82.85% of adjusted transfer value as of June 14th.

As we noted in last week’s issue, Tether recently launched USDT on Ethereum (USDT-ETH), in addition to its original token (USDT) built on the Omni protocol. The below chart shows Tether’s market share (combining both USDT and USDT-ETH) compared to the combined market share of the remaining five stablecoins (DAI, PAX, GUSD, TUSD, and USDC) as measured by two metrics: active addresses (the number of unique addresses that were active in the network that day), and adjusted transfer value, which we define as the USD value of native units transferred that day, removing noise and certain artifacts like self-sends or deliberate spammy behavior.

Active Addresses

Overall, the amount of total stablecoin active addresses is also growing. The below chart shows the total amount of daily active addresses across all seven stablecoins in our sample. Active addresses peaked at 66,898 on May 27th:

Interestingly, USDT-ETH just recently passed DAI and USDC in active addresses market share. While USDT still dominates, the Omni version of the token has actually been losing market share, as USDT-ETH has grown:

Adjusted Transfer Value

There have also recently been surges in stablecoin adjusted transfer value, reaching over $1.2 billion on May 24th. The below chart shows the combined (across all seven stablecoins) adjusted transfer value over the last six months:

Although Tether still leads in terms of adjusted transfer value, its lead is not quite as large. DAI currently has about 4% of the adjusted transfer value market share, while PAX and USDC each have about 5%.

While Tether still dominates the current stablecoin market, with new entrants such as Libra looming, it will be interesting to see how things look in a few months.

Network Data Insights

Summary Metrics

Mining Revenue

Network Highlights

On Friday June 14th, Bitcoin’s daily active addresses exceeded 1 million for the first time since Jan 19th, 2018. Meanwhile, its 1-year active supply appears to be growing again after 11 months of decline. Both signal potential positive momentum for Bitcoin moving into the second half of 2019:

Market Data Insights

The market experienced another week of broad-based gains, with many assets up by 10 to 20%. Notable outperformers include ZCash (+33%), NEO (+23%), and Bitcoin (+22%).

The market reacted to the news on June 14 to a change in Binance’s terms and conditions in which they added a clause that “Binance is unable to provide services to any U.S. person”. The timing of this change closely coincided with an announcement by Bittrex on June 14 that it would further restrict an additional 42 assets from U.S. customers. Combined with a similar announcement earlier this month by Bittrex, this brings the total number of restricted assets to 74.

During this period, Bitcoin rallied on the news while many other assets at risk of being restricted for U.S. customers sold off, as market participants rightly interpret that the latest regulatory pressure will be beneficial for assets likely to remain available to U.S. customers. The market has since rallied to new weekly highs.

Bitcoin’s return of +22% is on the upper end of weekly returns of about 110 assets covered by the Coin Metrics Reference Rates, designed to be a transparent and independent source of pricing for portfolio accounting or research purposes.

At this point, the empirical data indicating that bitcoin and other crypto assets follow a bubble-and-crash cycle is quite strong. What is surprising in this market cycle is the speed and intensity of the returns given that many market participants believe that the current market cycle is in the beginning phases. For the month ending in May 2019, bitcoin realized a +62% return — the third highest monthly return in five years. The only two monthly returns that exceeded this return occurred in the later half of 2017 when the bubble phase of the market cycle was well established. Seeing such strong returns this early in this market cycle represents a distinct shift from previous market cycles. By comparison, the recovery phase following the previous crash in late 2014 was characterized by steady and moderate gains.

The exuberance of the recent market movement can also be seen by examining the top gainers and losers over the past week. The magnitude of the movements in Grin (+111%) and ChainLink (+90%) are reminiscent of the market environment last seen in late-2017. At this point, we are only seeing isolated incidents of market exuberance, however. Despite the broad-based rally, some assets are still declining in value suggesting that asset fundamentals are still playing a role in determining asset prices.

CM Bletchley Indexes (CMBI) Insights

Weekly Price Change

Insights

Below, we have mapped the Bletchley 10 Index values in both USD and BTC terms. You can see that while the index has more than doubled since the beginning of the year in USD terms, it has actually fallen relative to BTC, particularly in recent weeks because of BTC’s outperformance.

Subscribe and Past Issues

If you’d like to get State of the Network in your inbox, please subscribe here. You can see previous issues of State of the Network here.

Check out the Coin Metrics Blog for more in depth research and analysis.

Release of CM Reference Rates Methodology v1.2

Coin Metrics is happy to announce the release of an updated version of the CM Reference Rates Methodology, version 1.2. The updated document can be found here.

CM Reference Rates Methodology v1.2 adds nine new assets to the Coverage Universe, including

  • Gnosis (gno)
  • Holo (hot_holo)
  • MaidSafeCoin (maid)
  • Nuls (nuls)
  • QuarkChain (qkc)
  • ReddCoin (rdd)
  • Ravencoin (rvn)
  • Horizen (zen)
  • MonaCoin (mona)

There are no other changes to the methodology.

Previous methodology updates can be found at the links below:

Please reach out to Coin Metrics ([email protected]) for more information on the CM Reference Rates Methodology.

Coin Metrics’ State of the Network: Issue 3

Intro and Updates

Dear crypto data enthusiasts,

Welcome back to this week’s edition of Coin Metrics’ State of the Network, an unbiased, focused view of the crypto market informed by our own network (on-chain) and aggregate market data.

Last week was busy for Coin Metrics:

As always, if you have any feedback or requests, don’t hesitate to reach out at [email protected]

Weekly Feature

Comparing exchange volume to on-chain deposits

In pursuit of our objective to characterize the economic nature of all major public blockchains, we have sought to understand the centrality of exchanges. Some serve as de-facto banks while others allow traders to get exposure to the long tail of cryptoassets. Exchanges have a colossal on-chain footprint, and we would be remiss if we excluded them from our analysis.

Exchanges are often black boxes—much of the time, you have to take them at their word and trust that the market data they produce has integrity. However, we do have some fundamental audit mechanisms to gut-check their claims, with the most prominent being on-chain data. With some detective work, their wallet clusters can be found and analyzed.

We began work on this project several months ago and now feel confident enough in the integrity of the data to share some insights. As this data proliferates, we believe that analyzing exchange deposits will become a standard piece of trader diligence. It’s important to caveat that deposit data for exchanges is likely to be imperfect, and we are constantly improving our coverage. Check out our release blog post for more information about on-chain exchange flows. Eventually, we plan to work directly with exchanges so they can disclose this data on their own terms and we can be certain of its accuracy. If you’re an exchange and want to discuss, please reach out at [email protected]

Comparing trading volume and reserves allows us to derive some critical insights, which we will share with you over the coming weeks. First, it serves as a basic sanity check. An exchange with few demonstrable on-chain deposits but an extremely high claimed trading volume should be held in suspicion. For exchanges within the normal range, the ratio of exchange volume to reserves gives you an idea of the turnover within that exchange and its vibrancy as a market. Lastly, for derivatives exchanges, the relationship between the collateral deposited on the exchange and the trading volume or open interest could give you an idea of the average leverage ratio among traders.

The below chart shows the BTC reserves held at Bitfinex as well as the daily volume (in BTC terms) for all trades with BTC as the quote OR base currency (this would therefore include BTCUSD and XRPBTC). The intuition here is to capture all trading activity relating to Bitcoin at the exchange.

You can see that outflows from Bitfinex began in earnest in fall 2018 when news of a pending criminal investigation began to trickle out; and they accelerated in late April when the NY Attorney General filed suit against the exchange. Peak to trough, over 100k Bitcoins were withdrawn from the exchange.

As far as exchange vibrancy goes, Bitfinex is an active venue. In the last year, daily trades with BTC as the base or quote currency have averaged 15% of the value of BTC reserves held on the exchange. In late 2017, turnover was astronomical, peaking at 95% of the value of reserves.

The data for Poloniex, by contrast, tells a story of a venue in decline. Here we’re focusing on ETH trades and reserves since Poloniex was at one time a very popular exchange for ETH pairs.

In early 2016, Poloniex held over 11 million ETH in its vaults, down to only 1.1 million ETH today. Trading activity has also declined, not only on an absolute basis, but also relative to reserves. This means that the average trader with an ETH balance on Poloniex is trading in lesser volume today than they were 18 months ago.

In 2017, Poloniex’ volume-deposit ratio for Ether—the ratio of the volume of trades with ETH as the base or quote ticker to deposits on the exchange—averaged 11%. In 2019 so far, this ratio has averaged just 1.7%. Not only have traders moved on, but those that remain are trading less and less.

Binance by contrast tells a story of eye-popping growth, both in its BTC and ETH markets.

Since Binance straddles both chains, we’ve aggregated BTC and ETH deposits and trading volume in dollar terms in the chart below.

Relative to its reserves, Binance has staggering volumes. In the last year, it has averaged daily volume equivalent to an astonishing 51% of deposits. That means that trades against ETH or BTC pairs would match the deposits held on exchanges every two days. This may be partly due to the fact that Binance has far more markets featuring BTC or ETH than the other exchanges profiled here. But the figures nevertheless point to an exchange with extreme turnover relative to deposits held.

Note that the Y axis on this chart goes to 4, unlike the other volume-deposit ratio charts, because Binance has such elevated volume. In late 2017, Binance had daily volume in BTC or ETH pairs equivalent to four times the funds held on deposit. The difference between exchanges can also be due to usage characteristics. Some exchanges function more as trading venues, while others are used for long term storage. We expect that exchanges used as custodians and depository institutions would have a lower volume-deposits ratio.

The ultimate takeaway here is that the ledger is the ground truth, and as long as we can inspect it, we can hold exchanges accountable and equip traders and investors with the tools to protect themselves. At CM we believe sunlight is the best disinfectant, and while disclosing exchange reserves may be painful, it will be a powerful tool to sideline fraudulent entities and reward honest actors.

Network Data Insights

Summary Metrics

Mining Revenue

Network Highlights

Tether’s Growth on Ethereum

Tether (USDT) was launched on the Omni protocol but recently launched on Ethereum, Tron and EOS. On Ethereum, USDT’s ERC-20 is rapidly gaining on its Omni (BTC) counterpart both in terms of transactions and active addresses.

Here is a graph comparing USDT transaction counts across the different ledgers (note that “USDT” refers to the Omni ledger):

The below graph shows  the head-to-head market share of transactions sent on USDT (Omni) vs USDT-ETH. On March 13th, USDT had close to 100% of usage. As of June 9th, 82.74% of all Tether transactions were sent on USDT, while 17.26% were sent on USDT-ETH.

Similarly, USDT-ETH is starting to gain on USDT in terms of active addresses, which we define as ‘unique addresses that were active in the network that day:’

The head-to-head market share for active addresses is also starting to turn towards USDT-ETH. On June 9th, 20.9% of all Tether active addresses were on USDT-ETH, compared to only about 1% just three months earlier: :

Market Data Insights

Crypto asset prices continue to have no correlation to macroeconomic surprises

Bitcoin was created in January 2009 in the midst of and perhaps in response to a deep global recession caused by the financial crisis. U.S. equity prices would bottom just two months after bitcoin’s creation. Since then, all major developed world economies have enjoyed 10 years of moderate and coordinated economic growth, low inflation, and elevated asset prices with few exceptions.

Aside from the very first year of bitcoin’s existence, bitcoin has never existed during a global recessionary market environment leading many market participants to wonder how bitcoin would perform in such an environment. Although it is true that this empirical observational data does not exist and thus it is hard to definitively say how bitcoin would perform, recent market events over the past week provide us with additional clues to bitcoin’s sensitivity to the broader macroeconomic environment.

Two impactful macroeconomic events occurred this week:

One, in a conference sponsored by the Fed on June 4, Chairman Jerome Powell strongly signaled in a speech that the Fed is willing to enact stimulative monetary policy in response to any fallout caused by tariffs, trade wars, or other matters.

Two, on June 7, the U.S.’s employment situation released showing a large miss in both payrolls and wage growth relative to consensus expectations.  

Both events were impactful in that they represented macroeconomic surprises—it contained new data with respect to expectations on growth, inflation, and the future path of monetary policy. All major asset classes reacted to the events—rising sharply in the case of U.S. equities.

BTC and other crypto assets, however, had no reaction to any of the events. There was no sharp change in price nor any increase in trading activity. The most recent empirical evidence indicates that crypto assets have little to no sensitivity to any macroeconomic surprises, including surprises to growth, inflation, and monetary policy. This implies that the amount of institutional capital deployed in the space is still in its infancy, existing institutional investors in the space do not react to macroeconomic surprises, and crypto assets will continue to remain uncorrelated to short-term surprises. The narrative that crypto assets respond favorably to increases in geopolitical risk, however, remains interesting and an open question.

BTC and ETH declined by 9% over the past week. Most major crypto assets sold off by a similar amount. The noteable outperformer is LTC which marked a 10% gain, perhaps because market participants continue to price in the impact of LTC’s block reward halving, scheduled to occur in less than two months.

Crypto assets exhibit high correlation in the short-run but high dispersion in returns in the long-run

Crypto asset prices continue to exhibit high correlation in returns over intraday time frames. The chart below shows BTC, ETH, and XRP’s indexed prices over the past week. The narrative that all crypto assets move together and that most assets follow BTC remains true when examining prices over this time frame.

The strong correlation over intraday time frames masks high dispersion of returns over longer time frames. Looking at returns over the past year paints a markedly different picture. Among major assets, only a handful have a positive return and the range between the best performing assets and worst performing assets is large.

Noteable assets include BNB with a +115% return over the past year, and BAT with a +39% return. On the other hand, ONT, NEO, XTZ, VET, and MIOTA have each lost more than 70% of their value over the same time span.  

CM Bletchley Indexes (CMBI) Insights

June Rebalance

Consistent with the methodology, the CMBI products executed their monthly rebalance on June 1st. Read the June Rebalance Summary for more information.

MTD Metrics

As of June 1, 2019

Subscribe and Past Issues

If you’d like to get State of the Network in your inbox, please subscribe here. You can see previous issues of State of the Network here.

Check out the Coin Metrics Blog for more in depth research and analysis.

Coin Metrics’ State of the Network: Issue 2

Intro and Updates

Dear crypto data enthusiasts,

Welcome back to this week’s edition of Coin Metrics’ State of the Network, an unbiased, focused view of the crypto market informed by our own network (on-chain) and aggregate market data.

Last week, Coin Metrics released historical rates for our CM Reference Rates product and made some updates to the methodology. Check out our blog post about the release. This week, Coin Metrics expects to release version 4.0 of our CM Network Data Pro product. Stay tuned for an update when the release is complete.

As always, if you have any feedback or requests, don’t hesitate to reach out at [email protected].

Weekly Feature

Thoughts on Supply Distribution

Today, 96% of all of the 26 million Ether addresses with a balance hold one or fewer units of ETH. It wasn’t always this way. At the time of the crowdsale, 85% of ETH addresses held between 100 and 10,000 ETH. This stands to reason—crowdsale participants were buying ETH in larger lots, as the sale price at the time was just $0.31. The charts below illustrate the distribution of Ethereum accounts by the number of ETH held. The growth in accounts of such small size likely speaks to the rise of “dust” (small amounts of native units left behind in addresses that are smaller than the fees or effort needed to move them).

We’ve also included the absolute view so you can see the growth in the address space over time.

The history of Bitcoin is similarly etched on the distribution of addresses by balance. From inception in early 2009 to mid 2010, virtually no addresses sprang up in denominations outside 10-100 BTC. During that time, bitcoins were mined in lots of 50, and the handful of early users didn’t bother sending anything less than a few BTC. It wasn’t until mid 2011 that the Bitcoin address space came to resemble something close to its present form, with addresses holding <0.1 BTC becoming dominant. Today, 89% of all Bitcoin addresses hold less than one BTC.

However, this doesn’t tell the whole story. Arguably more important if you are interested in the dispersion of supply is the distribution of supply by address size.

You can see that Bitcoin was primarily held in denominations of 10 to 100 early on. Around 2013, most of Bitcoin’s supply came to be held in addresses with well over 100 BTC. For those interested in Bitcoin’s GINI coefficient, the chart also shows an interesting phenomenon: a slow but steady march upwards of the supply held in addresses with 1 to 10 BTC and 0.1 to 1 BTC, more typical of today’s holders. This unabated increase of the supply held in smaller addresses is evidence of Bitcoin’s continuing dispersion. Interestingly, you can see where Coinbase reshuffled their cold storage in December 2018, taking their holdings from addresses larger than 10,000 BTC to smaller addresses.

This pattern of supply settling into smaller denominations is also present for Ethereum, although only 3% of the ETH supply is held in balances of 10 or fewer ETH, compared to 13% for BTC (note however that ETH has a larger supply, BTC has had much longer to become dispersed, and BTC’s UTXO accounting model means addresses are rarely reused after transacting).

Note that all of these dispersion figures can be manipulated, say by a whale taking their 100,000 BTC wallet and splitting it into thousands of 10 BTC wallets, although that would be very cumbersome and costly. If this were to happen, we’d also notice a dramatic shift in the supply distribution that we do not currently see.

These supply repartitions also tell us about the effect of various catalysts like forks. Here we’ve taken the distribution of supply for BTC and BCH since the August 2017 BCH fork. You can see that BCH supply came to settle in larger address sizes, in particular addresses with a balance of 10,000 to 100,000 BCH. The share of supply held in wallets with 10 or fewer BCH actually shrank, from 10.6% at the time of the fork to 7.3% today (it’s 13% for BTC). This is conditional evidence that minority forks tend to be concentrative, as many holders of the parent asset sell their forked coins, and a few large entities scoop up the supply.

The fully stacked area plots don’t give you the full picture of adoption; they only show you the relative change.

To get a view of the changing level of dispersion in real world terms, scrutinizing the growth of meaningful addresses can be helpful. We informally define a “meaningful” address as one with at least one billionth of supply—for Bitcoin this would be the equivalent of $178. The chart below plots the number of meaningful addresses over time for Bitcoin and its forks. It can be understood as measuring dispersion over time, in particular into the hands of smaller holders. The concentrative trend visible here is evident for every fork of BTC so far – as Bitcoin has continued to disperse itself into the hands of more owners, the minority forks have failed to find traction in this way.

Here’s the same chart for a variety of top cryptocurrencies. While this should be heavily caveated with the point that addresses aren’t directly comparable—especially between UTXO-based chains (like Bitcoin) and account-based chains (like Ethereum)—the trends over time are nevertheless interesting to take note of. Of particular note: XRP only has about 570k addresses with at least a billionth of supply, well below Bitcoin and Ethereum.

Network Data Insights

Summary Metrics

Top 5

Network Highlights

BTC Difficulty

BTC difficulty is an at all time high. Miners’ margins have increased with the BTC price and it looks like either they’re reinvesting those increased margins in more hardware or new miners are entering the market.

USDT Transactions

The share of BTC transactions involving USDT (via the Omni protocol) has risen from around 5% to nearly 20% since the beginning of the year (every transaction on Omni results in a transaction on Bitcoin). Despite the current legal woes of Bitfinex and Tether, USDT activity is booming on-chain, both in numbers of transactions, but also in circulating supply (which is currently at an all time high). USDT has also recently launched on the Ethereum, EOS and Tron protocols and has seen rapid growth on Ethereum in particular. This makes the increase in USDT transactions observed on Omni (and therefore on Bitcoin) all the more impressive.

Market Data Insights

The upper bound of volatility has continued to decrease, but the lower end remains elevated

Volatility continues to remain high for crypto as an asset class. The three-month annualized volatility of bitcoin has experienced a wide range of historical values depending on where it is in the market cycle—from a high of 225% early in its history to a low of 25% in early 2016 as prices began recovering from the previous bubble.

The general trend is that bitcoin is becoming less volatile over time as it matures into a legitimate asset class. The market microstructure, trading infrastructure, and price discovery mechanisms continue to improve. These factors and the fact that the trough-to-peak impact of market cycles continue to attenuate has led the high range of volatility to decrease over time. At the peak of the previous bubble, volatility only reached 135%.

While the rolling volatility of bitcoin indicates that the upper range of volatility has continued to come down, the lower bound of volatility continues to remain elevated. The three-month annualized volatility of bitcoin stands at 71%—higher than previous lows. In fact, at the trough of this market cycle, the rolling volatility only briefly dipped below 50%. The previous lows in volatility were in the 25 to 35% range. For comparison, the volatility of U.S. equities is currently at 18%.

Two explanations exist for why the lower bound remains elevated.

One, trading has become more fragmented over time rather than less fragmented. While in the past, trading activity was concentrated in just a handful of exchanges, now price discovery happens on multiple exchanges. Despite the overall increase in liquidity and continued development of institutional-grade trading infrastructure, there is now more dispersion in exchange market share, not less.

Two, the rise of margin trading and futures contracts have an outsized impact on the market. Over the past year, compelled margin calls or liquidations of futures contracts through engineered price movements have become the defining mark of many large short-term moves in crypto markets

Bitcoin continues to be one of the least volatile crypto assets

Among crypto assets, bitcoin continues to maintain its safe-haven status and experiences the lowest realized volatility among the major assets in the chart below.

Capital may be shifting from bitcoin to other crypto assets

During the previous bubble, bitcoin led the rally for in the early stages of the bubble leading to large unrealized gains. This led to an explosion in the global supply of crypto assets as many new ICOs were launched. The intermediate and final phases of the bubble were characterized by a large-scale shift in capital from bitcoin to other crypto assets.

Over the past week, bitcoin dropped by 5%. Many smaller assets outperformed this threshold although still had a negative weekly return while some assets experienced a positive return. This is significant because for many assets over the recent past, bitcoin has either significantly outperformed or risen a similar amount to other crypto assets.

This past week was one of the first instances of bitcoin underperformance. Looking at the distribution of returns for 101 assets in our CM Reference Rates product relative to bitcoin indicate that we may be in the early phases of capital shifting from bitcoin to other crypto assets.

Subscribe and Past Issues

If you’d like to get State of the Network in your inbox, please subscribe here. You can see previous issues of State of the Network here.

Check out the Coin Metrics Blog for more in depth research and analysis.