Published: December 22nd, 2021
Bitcoin has had a big year. Alongside a massive price rise, El Salvador made bitcoin an official legal tender, prominent athletes started taking part of their salaries in BTC, and Bitcoin futures ETFs can now be traded on a major US exchange.
Yet while adoption and legitimacy have grown, most of the volume has been concentrated in the hands of the few. Roughly three-quarters of BTC is simply moved from one exchange to another, while a relatively small number of wallets hold more than a quarter of bitcoin’s circulating supply.
A new report from America’s National Bureau of Economic Research and cited in the Wall Street Journal found that a tiny fraction, just 0.01% of bitcoin holders, control 27 per cent of all the BTC in circulation.
According to the newspaper, the top 1,000 wallets control about 3 million, or 17 per cent of all circulating BTC, while the top 10,000 investors own close to 5 million, or 27 per cent.
When data was being compiled in late June, roughly 18.6 million bitcoins were circulating between 786,000 active wallets. Data from Glassnode shows that there are now 18.8 million bitcoins in circulation in 733,000 active wallets.
BTC’s price, meanwhile, was USD 34,491 when data were analysed in June. At the time of writing, it had risen to USD 47,221.
It’s worth noting the study’s methodology. Researchers relied on clustering algorithms to distinguish wallet addresses owned by hedge funds and exchanges from wallets controlled by individual investors. If the analysis had factored in wallets controlled by large corporates, the 0.01 per cent figure would be higher.
‘The data includes 1,041 different entities,’ the study’s authors wrote, ‘which cover 391 exchanges, 37 online wallets, 84 gambling sites, 61 mining pools, 33 payment processors, 37 scammers, 149 darknet markets, 220 ransomware hackers, and a few illegal services.’
Despite the apparent hoarding of wealth, investor interest in BTC hasn’t been dented. A race is on to gain exposure to the next big thing in blockchain.
According to Pitchbook, 2021 has seen a USD 30 billion jump in VC money invested in startups with blockchain, metaverse, and Web3 offers.
‘The BTC market has advanced beyond early-adopter dreams of digital gold,’ said Jeremy Bogart, a partner at Blockchain Capital in the Wall Street journal. ‘Now you’ve got a multi-faceted market involving traditional financial services, the art world, gaming and play-to-earn. Investors are looking at an explosion in growth and innovation; and thinking, "I need to get more exposure".'
Led by bitcoin, the crypto market began the year with a record-setting January. Numbers from asset management firm Coinshares said investment across all crypto investment funds had exceeded USD 1.3 billion at month’s end, marking a new high.
Coinshares considered positions taken by big companies like Grayscale, 3iQ, and others in crypto funds. At the time, Grayscale had over USD 25 billion in assets under management and was the market leader in crypto investment products.
The firm attributed January’s record inflows to an extended bitcoin bull run that began in late 2020, saying BTC’s price performance in the period had driven 97 per cent of the January investment boost.
But it may have been just the tip of the iceberg. Analysts noted that money coming into investment-grade funds accounted for just a fraction of total bitcoin trading volume.
‘The underlying liquidity of BTC really hasn’t been tested yet by mainstream investment vehicles,’ the company said in its report. ‘Investment products account for just 6.4 per cent of total bitcoin trading turnover. Trading volumes for BTC have been much higher overall, coming in at USD 12 billion each day on average, versus USD 2.2 billion in 2020.’
At mid-year, crypto markets had chalked up another record. Total market capitalisation crossed USD 2 trillion. At the end of May 2021, the total crypto market cap had reached USD 2.05 trillion, a rise of close to five per cent.
Analysts at Bianco Research said in a report that the rise meant that crypto markets had exceeded the market capitalisation of the entire American banking system.
Off the back of a 100 per cent year-on-year increase over 2020, crypto markets beat the S&P Composite 1500 index, which tracks the stock performance of major US banks.
Bianco noted that another doubling of crypto’s market cap would make it bigger than the combined value of every institution in America’s traditional financial system, from banks to insurance companies, hedge funds, forex firms, and brokers.
Crypto had even chipped away at gold’s market capitalisation, amounting to 27.6 per cent of the yellow metal's value in circulation. Looking back, we can see that the trend continued, with more investors dipping a tow into BTC-backed assets and reducing reliance on traditional safe haven trading instruments.
Bitcoin passed a milestone of its own in the same period, rising above USD 1 trillion in cumulative market cap for 12 days in a row. Of course, BTC hasn’t been the whole story in 2021’s year of crypto. Ethereum has seen significant percentage gains while the exploding DeFi market has yielded its own set of price performance overachievers.
Crypto’s amazing year has also been marked by extreme volatility, shooting upward then dropping back sharply as institutional investors and economic news triggered major price moves.
In March 2021, global crypto market capitalisation climbed by six per cent over three days to hit USD 1.72 trillion. Within a few hours of hitting those heights, it came crashing back to earth and closed the day at USD 1.66 trillion.
It represented the biggest 1-day fall of the year, prompting some analysts to draw parallels with an earlier drop in the price of BTC and ETH seen in February 2020.