Cryptocurrencies, particularly Bitcoin, have received a fair share of attention this year thanks to the growing interest of traditional financial institutions in digital currencies and the pandemic-induced economic slowdown affecting economies and markets. The research division of the leading crypto spot and derivatives exchange OKEx – OKEx Insights, in partnership with blockchain data company Catallact, recently completed a comprehensive study of transactions conducted on the Bitcoin blockchain to identify the prevailing investment trends in the industry.
The study took into account bitcoin data in the chain from January to early August, taking into account transaction sizes to understand the behavior of large investors in the sector. One of the goals of this study was to find out whether or not the addition of Bitcoin to the portfolios of well-known funds really encourages institutional investors to invest in the flagship cryptocurrency as claimed.
There have been a number of cases in the recent past, including the announcement by macro investor Paul Tudor Jones that his Tudor BVI fund will trade bitcoin futures and the story that MicroStrategy, listed on the Nasdaq, has over 250 million worth of bitcoins US dollar buys to hedge against inflation People believed that more and more big investors continued to hoard cryptocurrencies. To identify the behavior, the OKEx Insights – Catallact Study differentiated Bitcoin blockchain data based on the transaction size in 4 different categories.
It was believed that most of the daily transactions in the 0-1 BTC range belonged mainly to retail investors, with a small percentage of them being due to payments from crypto users. The second category included medium-sized transactions of 10 to 100 BTC per day attributed to miners and larger retailers, followed by large daily transactions of 100 BTC to 1000 BTC sizes by large investors. Ultimately, it was believed that transactions over 1000 BTC were made either by exchanges or by institutional investors.
The number of transactions decreases as the amount of BTC processed increases. Source: catallact
Comparing the number of such transactions to the movement in the market price of Bitcoin enabled the team to identify certain behavioral trends that were prevalent in the first half of this year. Smaller transactions under 10 BTC made up most of the transactions on the blockchain, with the majority being less than 0.1 BTC. It has been found that these transactions closely track the market price movement and decline in the cryptocurrency as volatility increases or the price decreases.
Meanwhile, the medium-sized transaction volumes are more resilient compared to smaller transactions. Even when the market was constrained due to the worsening COVID19 situation, the deviation in trend was minimal, with the exception of the time around the Bitcoin halving event when activity declined for a while. It's not surprising since the category includes miners. At the same time, major investors and crypto whales appear to have made up for the decline in transactions by resuming their business as usual after a quick rebound.
For transactions with larger volumes in the range of over 1000 BTC, the number of daily transactions had increased repeatedly during the price consolidation phase between May and July. Most of these transactions came from crypto exchanges as they shuffle funds between wallets, large institutional players and big money whales for security reasons, while accumulating or distributing crypto holdings in anticipation of price movements during the consolidation phase.
The study assumes that institutional investors and crypto whales are more likely to buy large amounts of crypto in the lean phase when prices are at the lower end, as in this case. They prefer to get involved in the market at a lower price and hold it for the long term, with the expectation that Bitcoin value will increase over time for huge returns compared to other traditional investment opportunities.