On-chain analysis
What is On-chain analysis?
On-chain analysis involves looking back at historical data on the blockchain ledger to help make informed investment decisions. On-chain analysis quantifies and evaluates the fundamentals, utility and transaction activity of a chosen digital asset and its specific blockchain data. We use on-chain data analysis to predict future price movements by comparing, contrasting and identifying a convergence across data points.
The CryptoZion newsletter will include on-chain data analysis for various digital assets but prioritise Bitcoin, the market leader.
If you are just starting to learn about digital assets then be patient when it comes to on-chain analysis. Not everyone has to do it but it can be helpful and its a lot easier than it initially looks.
ITEM 1: Addresses by time held
Data source: Intotheblock.com
Time span: 2008 - 2022
1st of January 2010
0 Hodlers (1+ years)
26.22k Cruisers (1-12months)
3.74k Traders (>1month)
1st of January 2014
621.35k Hodler addresses
882.9k Cruiser addresses
427.41k Trader addresses
1st of January 2018
9.14M Hodler addresses
11.57M Cruiser addresses
5.69M Traders addresses
1st of January 2022
24.06M Hodler addresses
14.35M Cruiser addresses
4.65M Traders addresses
The above chart shows data from 2008 - 2022 for the amount of time Bitcoin is held in addresses. Underneath the chart are some time stamps from January 2012, 2014, 2018 and 2022 roughly coinciding with bullish market cycles.
What can we learn?
HODL’er addresses i.e. market participants who are buying BTC and holding it for 1+ years are increasing significantly with each cycle. 2014 - 2018 was the most prolific growth for hodlers. As you look at the graph you can see that in 2018/2019 long term Bitcoin HODLERs become the dominant group and have been ever since.
Similarly we can say the same about Cruisers i.e. those who hold BTC between 1 - 12 months. 2014 - 2018 was also the most prolific growth for the cruiser addresses.
Traders addresses, those who hold BTC for less than a month has increased significantly since 2010 however, since 2018 traders addresses have decreased. Is this a bad sign? I don’t think so. This data is isolated to BTC therefore we must consider ALT growth. The 2017 - 2018 bull market was significant for BTC however for ALT coins it was possibly even more important. BTC is the market leader however there are currently over 20,000 cryptocurrencies meaning there are more choices for market participants to invest in. High risk traders have most likely moved to more volatile ALT coins to make higher gains which are no longer possible with BTC as the asset matures.
Based on this data we learn that BTC holders continue to increase as market participants realise it is the hardest asset that one can own.
ITEM 2: Holdings distribution matrix for BTC
Source: intotheblock.com: Table breakdown of the number of addresses and volume held by different levels of holdings
This table allows us to identify supply concentration and the distributed nature of Digital Assets. Bitcoin is the most distributed and decentralised digital asset available meaning it is also the most secure.
As you can see though nearly 75% of market participants holding BTC own less than 0.001 of a Bitcoin. There are a significant amount of Bitcoin holders who own 10 - 10k Bitcoin covering three of the above brackets.
What are the take aways?
Holders continue to grow as adoption increases.
BTC is increasingly becoming an asset to hold rather than use as a medium of exchange.
BTC is the most decentralised digital asset available and therefore the most secure.
As adoption continues the lower balance owners will grow in number but the coin distribution percentage will continue to a path of an even spread.