Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
The latest report counters the conventional wisdom that the volatility in Bitcoin prices is due to short-term investors exchanging multiple hands.
The overall cryptocurrency market has been on a massive recoil ever since it attained its peak of $826 billion during the start of 2018. The market valuations since then have dropped down by over 60% and is currently at $282 billion according to the data on CoinMarketCap.
Bitcoin along with other popular altcoins like Ethereum, Ripple, Litecoin, Bitcoin Cash and others have corrected by over 50%, however, Bitcoin has always been the talk-of-the-town considering that it enjoys being the worlds most liquid digital currency having the highest marketcap in comparison to its peers.
In the past six months, Bitcoin has dropped from a high of $20000 to making a low below $6000 which marks an erosion of nearly 70% in the valuations. Usually, many analysts have blamed new and shaky investors for the volatility in the Bitcoin price. According, to the latest report from Chainanalysis, the steep fall in the Bitcoin prices is basically due to huge selling triggered by long-term investors who are popularly referred as Bitcoin whales or HODLers in the cryptocurrency community.
Chainanalysis in its report mentions:
Long term investors sold $30 billion of bitcoin to new speculators between December 2017 and April 2018, with half of this transfer occurring in December alone. This was an unprecedented sell off and such an opportunity is unlikely to be repeated soon.
The report also further goes to mention that the long-term investors sold their holdings to new entrants and speculators, instead of other long-term investors. this inappropriate shifting of hands resulted into further imbalance in the Bitcoin wealth away from those who have shown their ability to HODL even during the tough times of the market.
This report from Chainanalysis completely counters the conventional wisdom that the market has been falling due to the sell-off triggered by short-term players who bought Bitcoin at its all-time high and failed to hold the nerve. The report also notes that the amount of BTC available for trading has increased by 57 percent after the massive sell-off triggered in December.
A report from Financial Times suggests that a group of nearly 1600 investors, known as the Bitcoin Whales have amassed one-third of the Bitcoin supply which accounts to a whopping $37.5 billion in valuation. Chainanalysis mentions that
Bitcoin wealth is concentrated, but this has decreased with the influx of new speculators. Five million bitcoin – one third of available supply – is controlled by the 1,000 largest long term investors and the 600 largest new speculators. Speculators tend to own less bitcoin, with half of speculative coins in wallets containing at least 200 bitcoin, while half of investment coins are held in wallets of at least 700 bitcoin.
Chainalysis chief economist Phillip Gladwell said:
“This concentration of wealth means that bitcoin is at risk of volatility as the moves of a small number of people will have a large price effect. This was an exceptional transfer of wealth, and conditions for it to occur again are unlikely to form again soon.”
For the Bitcoin prices to recovers, speculators will have to reduce by HODLing or the demand needs to get increased that is driven by new speculators and even new Bitcoin use cases.