Increased Interest From Institutional Investors Could Tip the Scales in the BTC Market

KEY TAKEAWAYS 

  • From an attempt to account for the ownership of roughly 50% of BTC’s total supply, we found that institutional investors are becoming increasingly relevant to its uptake
  • Despite their active involvement early on in the crypto ecosystem, investors located in East Asia (China, Hong Kong, Korea, Japan and Taiwan) are underrepresented in the BTC ownership structure, pointing towards waning relevance 
  • Rumor has it that investors in East Asia are less involved in the current bull market due to early exit during the March liquidity crunch

A non-exhaustive ownership analysis of Bitcoin finds that, contrary to popular belief, the ownership of bitcoin from investors based out of East Asia is not in line with general bullish sentiment, nor is it reflective of the region’s status in the global industry. Leveraging public sources, (including but not limited to company disclosures, prospectus info, news reports, Twitter disclosure, and on-chain data), we can roughly account for 50% of ownership of BTC’s total supply, including those that are unmined or “missing”. Here, we will examine ownership in several categories such as funds, listed companies, unlisted companies, exchanges, custodians, high-net-worth individuals, governments, crypto projects and others. 

EntityBTC Holdings%Total Supply
BTC Funds
Grayscale515,1652.45%
Coinshare XBT70,4070.34%
3iQ (QBTC)8,2950.04%
ETH Group5,2150.02%
21 shares AG2,9890.01%
Subtotal602,0712.87%

While Grayscale mainly holds bitcoins through the Grayscale Bitcoin Trust (GBTC), it also holds a tiny portion of BTC through its Digital Large Cap Fund. Given the lack of redemption programs, Grayscale can only sell 2% of its BTC holdings every year in order to pay management fees, as we explained previously in this Bybit Insights article.  

EntityBTC Holdings% Total Supply
Listed Companies
MicroStrategy38,2500.18%
Galaxy Digital19,0060.09%
Square4,7090.02%
Hut 8 Mining2,9540.01%
Voyager Digital1,2390.01%
Riot Blockchain1,0530.01%
Bit Digital9500.00%
Subtotal68,1610.32%

Not only are we counting Galaxy Digital’s BTC on its own book, but we’re also counting the bitcoin holdings in its BTC funds. 

EntityBTC Holdings% Total Supply
Unlisted Companies
Bitmain22,0820.11%
Stonebridge10,8890.05%
Subtotal32,9710.16%

It is a bit tricky to determine the holdings of Bitmain here, as the latest publicly available figures are dated back in March 2018. It is possible that Bitmain sold some of its bitcoin holdings during the difficult time in 2018 and 2019 without public disclosure, but for this exercise, we will base our findings on the latest available figures. 

EntityBTC Holdings% Total Supply
Exchanges
Coinbase931,9564.44%
OKEx293,4741.40%
Binance292,1081.39%
Huobi289,3411.38%
Mt. Gox141,6860.67%
Kraken117,0200.56%
Bitstamp111,2070.53%
Bitfinex72,8530.35%
Bitflyer67,3610.32%
Bittrex61,5990.29%
Poloniex46,0420.22%
Coincheck35,3910.17%
Gate.io21,3180.10%
Subtotal2,481,35611.82%

It is also possible that U.S. companies or large individual entities hold their BTC with Xapo, a crypto custodian service provider, which could mean that we’re doubling up some figures. But we believe the likelihood of that is small as new entrants would most likely prefer U.S. custodians such as Coinbase custody — a separate entity from the Coinbase Exchange. 

EntityBTC Holdings% Total supply
Custodians
Xapo cold wallet286,4341.36%
Subtotal286,4341.36%

Michael Saylor, CEO of MicroStrategy, confirmed that he was holding 17,732 BTC before his company purchased $425-million worth of BTC as part of its treasury management strategy. For the purpose of this piece, we’re excluding Roger Ver, the former CEO of Bitcoin.com from this list. Even though he used to hold upwards of 100,000 BTC, it’s well documented that he exchanged most of it to BCH and others. As such, we will assume that the remaining undisclosed amount is negligible.

EntityBTC Holdings% Total Supply
High-Net-Worth Individuals
The Winklevoss Twins100,0000.48%
Tim Draper30,0000.14%
Michael Saylor17,7320.08%
Subtotal147,7320.70%

Governments have their fair share of bitcoin holdings also, usually from confiscating bitcoins used for criminal activities. For instance, the Bulgarian government is sitting on at least 213,000 bitcoins, which were confiscated after Bulgarian law enforcement authorities apprehended a group of international hackers. If sold at the current price, the amount is enough to repay a large portion of the government’s external debt. Similarly, some law enforcement agencies in China seized 425 million yuan worth of illegal proceeds from the infamous Wotoken ponzi scheme, which included around 31,000 bitcoins.

Recently, the U.S. government forfeited $1 billion in bitcoins and other cryptocurrencies that are linked to the sales of illicit drugs and goods on the Silk Road, a dark web marketplace that was shut down in 2013. This is the largest seizure of cryptocurrency in the history of the U.S. Justice Department, and finally offers some closure as to where the money went following the execution of Silk Road’s founder in 2015.

EntityBTC Holdings% Total Supply
Government
Bulgarian Government213,5191.02%
Holland Government2,5320.01%
US Government69,3700.33%
Wotoken247,4291.18%
Subtotal532,8502.54%
EntityBTC Holdings% Total Supply
Crypto Projects
Block.One140,0000.67%
Tezos Foundation24,5510.12%
Subtotal164,5510.78%
EntityBTC Holdings% Total Supply
Others
Unmined2,468,84411.76%
Missing3,700,00017.62%
Subtotal6,168,84429.38%
Total10,484,97049.93%

After factoring in crypto projects and missing coins, our analysis on BTC ownership, despite the constraints, accounts for close to 49.3% of the total supply. Though this is far from perfect, it does at least provide a solid benchmark. 

In addition, leveraging the geographical research conducted by Chainalysis, it’s clear that values sent and received have been on the decline for the past year in the East Asian market.

Source: Chainalysis

From the graph above, we can discern East Asia was hit rather hard after the March liquidity crunch. Still, the robust mining activities in the region have contributed to its leading position in the global arena. China alone controls 65% of Bitcoin’s total hashrate. Its hegemony in the crypto mining industry provides a huge liquidity boost to the global crypto market. 

However, as the crypto mining industry matures, the Chinese government is imposing more rigorous regulations in its attempt to subdue the narrative of bitcoin/crypto being an alternative to a centralized currency. During the launch of the country’s state-backed currency DCEP, the state media mouthpiece made a point to differentiate the DCEP project from cryptocurrencies. In addition, the Chinese government has recently closed off many Over The Counter (OTC) selling pipelines for Bitcoin, setting hurdles for miners to cash out. 

Meanwhile, since December 2019, the increasing dominance of the U.S. rose from 87% in December 2019 to a historic high of 92% in May 2020, which was partly propelled by the transfer of at least $1 million worth of assets from institutional investors. The U.S. has indeed hosted a growing class of institutional investors, who are conducting even larger transfers of cryptocurrency than professional traders. These institutional investors are disproportionately favoring Bitcoin, which could mean that they will eventually have a stronger control of the market.  

Source: Chainalysis

Coupled with findings from the Chainalysis research, we have made the following observations: 

  1. Centralized exchanges affect the majority of BTC’s price movements. Exchanges account for around 12% total BTC ownership but 41% of total BTC in transactions in a given year.
  2. Based on the analysis, Chinese investors are less relevant to the BTC market as more bitcoins flow to non-Chinese exchanges, BTC funds, companies, and high-net-worth individuals from other countries. 
  3. Institutional investors and tech moguls such as Grayscale, QBTC, Square, and MicroStrategy (and its CEO) have collectively purchased more than 280,000 BTC this year, which we believe is just a portion of the total net inflow of BTC to North America. In addition, the current bull market, despite the sudden price correction, garners momentum from increasing demands from PayPal and its competitor, Square. Collectively, the online payment giants boast an active user base of nearly 400 million and have absorbed more than 110% of the new BTC supply. 
  4. Statistics from Chainalysis offer an interesting observation: Bitcoin net inflows to North America have increased significantly from mid-March, with a net movement of at least 200,000 bitcoins from other regions to North America. 
Chart, line chart

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Source: Chainalysis

With more BTC flowing from Asia to North America, it is not wrong to infer that U.S investors are gaining stronger footing in the crypto space. Throughout the second half of 2020, there has been an influx of institutional investors seeking a safe haven against the backdrop of a prolonged zero-interest-rate environment.

On the other hand, rumor has it that many investors in China were liquidated during the March liquidity crunch, and have since exited the market. Missing out on the current bull could possibly account for the lack of investment activity in China.