Bitcoin as Pristine Collateral

Checkmate -

It has been an eventful week in the Bitcoin market, with an uptick in large public buyers such as MacroStrategy, and the Luna Foundation Guard, announcing, or completing significant Bitcoin purchases. With Bitcoin having a deterministic supply schedule and ultimate supply hard-cap, these events represent yet another step towards Bitcoin being perceived by the market as a form of pristine collateral.

The market traded relatively range-bound this week, between a low of $44,427, and a high of $48,083, consolidating after the recent price rally.

The perception and utilisation of Bitcoin as a form of financial collateral has been a steadily growing trend, and continues to span into new applications and use-cases. The Luna Foundation Guard (LFG) was a dominant buyer throughout last week, with the ultimate intention to use accumulated BTC as a backstop for the UST algorithmic stablecoin. In addition, inflows into wrapped WBTC, Canadian ETFs, and general investor accumulation on-chain has been historically strong, especially following the local price lows set on 22-January.

In this edition, we will explore a range of major supply sinks for Bitcoin, and characterise the accumulation behaviour over the recent weeks. Accumulation is being driven by both Shrimps (< 1BTC) and Whales (> 1k BTC), alongside these specific public entities (read more on our research describing Shrimps, and Whale holding denominations).

Executive Summary

  • Exchanges continue to see significant net coin outflows, with aggregate exchange balances hitting multi-year lows. BTC is flowing out of exchanges at a rate of over 96k BTC/month, signalling historically strong accumulation is taking place.
  • Accumulation is being driven by Shrimps (<1 BTC) and Whales (>1k BTC), both of whom have added significantly to their balances over recent weeks.
  • Large scale accumulation by the Luna Foundation Guard has taken place, with an increase of total holdings by 21,163 BTC over the last 9-days. Additionally, the total supply of wrapped Bitcoin on Ethereum (WBTC) has grown by 12.5k BTC showing a continuous demand for BTC as collateral in DeFi products.
  • Coins have continued to flow into Canadian Bitcoin ETF products, with total holdings increasing by 6,594 BTC since 22-Jan This is a 10.5% growth in coin holdings, despite the plethora of macro and geopolitical risks and headwinds that are in play.

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Bitcoin Milestone: 19 Millionth BTC Mined

This week the total Bitcoin supply reached the 19-millionth coin mined, leaving less than 9.52% of the final 21M supply left to be mined over the next ~118 years. At the time of writing (block height 730,278), the total BTC supply was 19,001,529.68 BTC, with a daily issuance of 918 BTC/day (14-day median basis).

Live Chart

A Week of Historically Strong Accumulation

As noted in the introduction, it has been a particularly impressive week for BTC accumulation trends, with both discrete public buyers, and the wider market adding to their balances.

The Accumulation Trend Score is one of our latest tools released to track the relative on-chain balance change of the market at large. Values closer to 1 (purple) indicate that whales and/or a large proportion of market entities are adding significantly to their balances. This week returned a consistent stream of values upwards of 0.65, which indicates a general trend of accumulation is underway.

Live Chart

We can see that exchange balances have also experienced a historically significant period of BTC outflows in response, reaching an outflow rate of 96.2k BTC/month. Outflows of this magnitude are uncommon, having happened on only several occasions through history.

A very noticeable transition from net inflows (green), into a regime of dominant outflows (red) remains in play, a trend that started immediately following the March 2020 market crash.

Live Chart

The impact of such a sustained, and high magnitude of BTC outflows is that the total balance held on exchanges has proceeded to multi-year lows. Over the course of March, over 96k BTC flowed out of the exchanges we track, reaching levels last seen in August 2018. Note that this represents a notable break downwards from the generally sideways plateau in exchange balances that was established from September 2021.

Live Chart

Diving deeper into specific exchanges, we can see that the majority of outflows are coming out of the largest exchanges in the industry. Coinbase, Binance, Gemini, Kraken, Bittrex and Bitstamp have seen significant net outflows of late, despite many of these seeing net balance increases over the last 12-24months. Binance in particular, which saw its coin balance dominance explode higher in 2021, has seen over 20.8k BTC in outflows over the last 2-weeks.

Live Chart

So Who is Accumulating?

Having established that a general trend of accumulation is taking place, we can now characterise the types of buyers participating. We can see that the Accumulation Balance continues to climb. This supply represents coins that are held in addresses with more than one deposit, and no history of spending. This metric excludes exchanges and miners, but will include large entities like custodians, LFG, and MacroStrategy.

The total balance held in Accumulation Addresses has risen by 217k BTC over the last four months, measured since the market deleveraging event on 4-December. This represents a growth rate of 1,800 BTC/day which is 2x the daily issuance to miners. Note that this also breaks away from a generally sideways balance trend established through most of 2021.

Live Chart

Next we look at on-chain entities with balances less than 1BTC, often referred to as Bitcoin Shrimp. These buyers are most likely to be retail level, or individuals, and this cohort has been aggressively accumulating since the local price lows set on 22-Jan. Over the course of the last ~2 months, Bitcoin shrimp have accumulated 0.579% of the circulating supply, which is 1.7x more coins than were mined over the same time.

Bitcoin Shrimp currently hold 14.256% of the coin supply in aggregate (note that this does not include any supply held by exchanges, which represent an additional thousands to millions of retail level customers in aggregate).

Live Chart

Next we look to the average supply held in each address associated with larger Bitcoin holders with 100 to 10k BTC in holdings (sharks to whales). Since August 2021, the average volume of BTC held in each address by this cohort has plateaued between 570 and 585 BTC per address. This is the result of both supply held, and address counts in this cohort remaining fairly stable over this time. This generally suggests that this wallet cohort are contributing the least to the current accumulation trends.

Live Chart

Finally, we can confirm and refine the above observations by looking to an unreleased metric from the Glassnode Engine Room, which breaks down the Accumulation Trend Score into wallet cohorts. Here we can see that smaller buyers (up to 100 BTC) have been the heavy accumulators since late-Jan, with the smaller balances (<1 BTC) being the most aggressive (green zone).

We can also see the 100-1k BTC wallet cohorts have contributed the least to the overall accumulation (red zone), whilst Whale cohorts (>1k BTC) have commenced serious accumulation over the last two weeks. This includes entities such as LFG, which we will explore more in the next section.

Unreleased metric from the Glassnode Engine Room

Major Bitcoin Supply Sinks

We have established that a very large volume of BTC is being accumulated by Whale entities (> 1k BTC) over the last two weeks. One of the most public entities has been the Luna Foundation Guard (LFG), which has now amassed a trove of 30,727 BTC. With an initial purchase of 9,564 BTC in late-Jan, valued at $358.6M at the time, the LFG balance has now grown by 21,163 BTC over a nine-day period. The total value of the LFG balance is now over $1.40 Billion.

Live Chart

The trend of wrapping Bitcoin into a tokenised variant, for deployment on other blockchains has also been a steady over recent years. Over 1.449% of the Bitcoin supply (275,236 BTC) is now held by the custodian BitGo, and issued as a tokenized version WBTC on the Ethereum blockchain.

Since the market lows on 22-Jan, the WBTC supply has grown by an additional 12.5k BTC, demonstrating an increased demand for Bitcoin collateral in DeFi, despite the chaotic macro and geopolitical conditions.

Live Chart

There has also been notable inflows into various Canadian ETFs, with Purpose ETF receiving the lions share of inflows. The Purpose Bitcoin ETF currently holds 35k BTC, seeing net inflows of 5,521 BTC since the 22-Jan price lows. This is a net growth of 18.7% of total BTC holdings in this time, amidst a storm of macro and geopolitical headwinds. The Purpose Bitcoin ETF now has $1.627B in assets under management.

Live Chart

In aggregate, the total holdings of all Canadian ETF products has risen by 6,594 BTC since late January, reaching an all-time-high of just over 69k BTC (0.36% of circulating supply).

It is quite impressive to observe such strong outflows from exchanges (spot holdings), as well as inflows into both ETF products, DeFi applications, and on-chain accumulation wallets, despite the numerous macroeconomic and geopolitical headwinds of recent months.

Live Workbench Chart

Summary and Conclusions

The Bitcoin market has seen a number of weeks of historically strong accumulation, which has been fairly widespread in relation to participation across wallet cohorts. Shrimp and Whales are the most aggressive accumulators of late, with a number of large public buyers such as LFG and MacroStrategy adding renewed emphasis on Bitcoin as pristine collateral.

What is most impressive is the general increase in Bitcoin demand across ETF products available in Canada, despite the plethora of headwinds such as conflict in Ukraine, commodity price rises and shortages, and tightening monetary condition.

In general, the market appears to be viewing Bitcoin and its role in the future economy with a somewhat renewed optimism. This is most clearly reflected in the net trend of outflows from exchanges, and into self or assisted-custody, a trend which started immediately following the March 2020 liquidity crisis.

With the 19 millionth coin now mined, and general accumulation exceeding daily issuance by many multiples, the scarcity and pristine nature of Bitcoin as collateral may well be returning to the foreground once again.

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Disclaimer: This report does not provide any investment advice. All data is provided for information purposes only. No investment decision shall be based on the information provided here and you are solely responsible for your own investment decisions.