According to data compiled by Coin Metrics, a crypto asset market analysis firm, the number of Bitcoin addresses that hold any amount of satoshis reached a new all-time high between October and November 2019. According to the data, more than 28,393,045 addresses held some balance of bitcoin in that period, eclipsing a previously achieved all-time high of 28,384,557 accounts in January 2018.
The previous all-time high occurred in the aftermath of a significant price bubble, while this most recent all-time high is the result of a steady increase.
Coin Metrics co-founder Jacob Franek told Bitcoin Magazine that the measure of Bitcoin addresses with any balance could provide significant insight into the total number of Bitcoin users, as a store-of-value use case is popular for HODLers and leads to fewer transactions and more addresses with BTC balances.
“Believers of Bitcoin as a store of value are more likely to HODL BTC,” Franek said. “Some may argue that those HODLers are users in the sense that they are using BTC as a store of value. Since these individuals exhibit a rather low time preference, we should expect from them to make few if any transactions even over large periods of time.”
Given the state of the bitcoin market and relatively slow price increases as compared to the thunderous ones that occurred in 2017, one can’t help but wonder why the new all-time high in HODLing addresses has occurred in the fall of 2019 without a massive bull market to support it.
Franek pointed out that there is a constant number of “dust addresses” (which hold amounts so low that the fee to move the satoshis is higher than what they contain), as well as an increasing number of bitcoin that get lost forever due to human error. He also pointed to recent Coin Metrics research to support the claim about permanently lost bitcoin.
Furthermore, Franek reaffirmed that an increasing number of HODLers has played an important role while downplaying the idea of an increasing number of users overall.
“Digging in further, we aren’t seeing all-time highs in active addresses, transaction counts or the average number of transactions per active address,” he said. “Therefore, the number of active users doesn’t necessarily explain this growth in addresses holding a balance. Consequently, we can hypothesize that some degree of this increase reflects long-term growth in the number of HODLers.”
The fact that addresses that hold more than the equivalent of $10 tend to remain inactive is another argument in favor of Franek’s HODLer theory.
“We see this same trend, for example, if we look at the number of addresses that hold at least $10 worth of BTC,” he added. “This amount of BTC is more likely to be economically important and is therefore less likely to be left behind by users.”
Another important factor that should be considered concerns the creation of new exchanges and the greater involvement of professional traders. Since not all of these participants have efficient procedures to collect dust from older addresses, it’s likely that they leave their footprints on the blockchain through transaction activity that doesn’t always prioritize UTXO consolidation.
“It could relate to the growth in new exchanges and how they manage their deposit/withdrawal processes,” Franek explained. “Not all exchanges have optimized processes for ‘consolidating dust’ (merging the small amounts of BTC into a single amount), so this might have an impact too. More market makers, arbitragers and other professional traders could also be playing a role. Taken together, the truth is probably somewhere in the middle.”
The Coin Metrics co-founder did point out that he doesn’t believe the increase is due to a greater number of individual users who withdraw their bitcoin from exchanges in order to become sovereign.
“One could argue that the opposite is happening, since the overall supply held by exchanges and custodians continues to increase,” he said.
Finally, Franek hinted at a possible Coin Metrics research project that may reveal more information about exchange-related addresses.
“It is however possible to filter out exchange-related addresses from this metric to get a cleaner picture,” he concluded. “It is an investigation that Coin Metrics may do in the future.”
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