Each month we dive into data on the chain to explore interesting trends or movements on the Bitcoin network. (Table 2)
Table 2: Bitcoin network activity – November vs October
The highest ever setting of November’s bitcoin price action occurred alongside a strong rise in bitcoin activity on the chain. Daily transaction volumes increased by 1.8% and daily payments increased by 3.4%; the daily number of active referrals was also up 8.9%.
This increased activity led to higher average fees per transaction in November with an average of $ 6 per transaction, which is still much lower than that seen during the 2017 bull run where the daily average fee per transaction remained higher than $ 20 during more than 30 days.
Last month we were talking about the sharp 25% drop in the estimated hash rate towards the end of October. It has now bounced back from an average of 108 EH / si solid 129 EH / s, thanks to the difficulty adjustment and rising bitcoin price which is attracting additional mining hashing power. (Less efficient mining hardware can once again become profitable to operate as the bitcoin price rises.)
Bull running comparison: December 2017 versus November 2020
The mempool is where all valid transactions are waiting to be confirmed by the Bitcoin network before being added to the blockchain. High mempool size indicates more network traffic.
Interestingly, the recent price action saw relatively low levels of mempool activity compared to the previous bull run in December 2017 (Fig. 2a).
Figure 2a: Mempool size showing lower activity in November 2020 than during December 2017 bull run
Taking a closer look, Figure 2b shows that the size of the mempool stayed high during the 2017 bull run, with a tight correlation between the size and price of mempool.
Figure 2b: The December 2017 bull run saw mempool size increase as the price increased
Initially, activity in November 2020 shows a similar pattern to 2017, with mempool size returning to normal levels in the middle of the bull run (Fig. 2c). Part of the recent transaction backlog was caused by a decrease in the hash rate just before the difficulty adjustment on November 3rd, rather than an abnormal increase in transactions on the chain.
Figure 2c: Mempool size remained low in November 2020 except for a short sting mainly due to the decrease in hashrate – not the price
This suggests two possibilities:
- Chain transactions are being conducted more efficiently these days with batch transactions and more widely used segmented transactions (ie withdrawals from exchanges that batch transactions occupy less block space)
- Price action is driven more by off-chain exchanges and large organizations rather than retail transactions, which may have a larger proportion of transactions settled on the chain
On another note, although the December 2017 rally around the $ 19k price mark took place towards the end of the halving cycle, we are currently relatively early in the cycle (Figure 3).
Figure 3: The November 2020 bull run is earlier in the halving cycle than December 2017
Measures of bitcoin ownership concentration on the chain can be challenging to interpret during significant price changes
One concern that has arisen about bitcoin is the concentration of ownership. More specifically, the concern is that a relatively small number of people are managing a large share of bitcoin compared to other asset ownership concentrations. This concern was cited by the U.S. Securities and Exchange Commission as one of the reasons for their reluctance to approve a bitcoin ETF.
We continue to monitor metrics on the chain to try to get a sense of how bitcoin’s concentration of ownership is evolving. Though on the chain metrics seem to suggest a bit reduction in the number of individual owners of bitcoin in November, these data can be misleading, especially during large prices as we have seen recently.
In November we saw a slight decrease from October in the number of individual bitcoin addresses holding 0.1 and 1 bitcoin:
- 3,178,169 addresses (9.59% of total addresses) have more than 0.1 BTC, and represent 98.82% of total bitcoins
- 822,971 addresses (2.48% of total addresses) have more than 1 BTC, and represent 94.82% of total bitcoins
- 3,115,354 addresses (9.38% of total addresses) have more than 0.1 BTC, and represent 98.85% of total bitcoins
- 821,358 addresses (2.47% of total addresses) have more than 1 BTC, and represent 94.95% of total bitcoins
How do these reductions fit with reports of significant increases in the number of new owners of cryptoassets during November? Several possibilities exist.
First, it is likely that many new cryptoasset owners primarily use third-party intermediary exchanges that hold cryptoassets on behalf of individuals, such as PayPal, Square, and the Blockchain.com Exchange. Growth in new users of custodial exchanges would not necessarily appear in the statistics of chain ownership dispersion.
Furthermore, during periods of large price swings coins tend to move more frequently than during the “crypto winter” periods. The address account decline could reflect individual owners moving coins to exchanges or consolidating balances.
One thing we can say for sure: recent price gains have made all bitcoin holders, regardless of ownership levels, financially better off (Table 3).
Table 3: Bitcoin owner wealth increasing