Bitcoin Money Supply Analysis Shows Investors and Speculators Have Been Hodling All Summer

By analyzing the money supply of bitcoin, we can make assumptions about how people are using, saving, and investing the world’s largest cryptocurrency. Blockchain analysis company Chainalysis recently analyzed the bitcoin blockchain to determine how money supply has changed over the past year.

Chainalysis first reported on bitcoin’s money supply earlier this year. In their initial report on bitcoin’s money supply, Chainalysis found that long-term bitcoin investors sold $30 billion of bitcoin to new speculators between December 2017 and April 2018, with half of the transfer occurring in December alone. This was seen as “an unprecedented sell off” for long-time bitcoin hodlers.

Chainalysis decided to repeat its analysis of bitcoin’s money supply. Chainalysis analyzed the bitcoin blockchain through August 2018 to see how bitcoin had changed since April.

Chainalysis concluded that bitcoin investors and speculators have held their positions over the summer. As the summer bear market continued to rage, bitcoiners continued to hodl, generally speaking.

How Chainalysis Analyzes Bitcoin’s Money Supply

Chainalysis is one of the leading firms in the world at analyzing blockchains. The company spent a significant amount of time and resources determining how to aggregate bitcoin’s money supply. Here’s a general overview of how they did it:

“Chainalysis clusters the bitcoin blockchain based on patterns and a variety of heuristics. Through these clusters, we can understand types of users, which allows us to define the money supply according to monetary aggregates.”

Chainalysis then categorizes bitcoins based on liquidity. The Federal Reserve and other central banks have different types of money supply, including M0, M1, M2, and M3, with coins ranked in terms of liquidity:

“With bitcoin, we can categorize coins from the most liquid (speculative coins and those used by services for transactions), to less liquid bitcoin (coins held for investment, including by long-term HODLers and new investors), and the least liquid (coins that are lost or yet to be mined). More specifically, we can categorize the money supply into monetary aggregates known as M0, the most liquid category, through M3, the least liquid.”

After separating bitcoins into different categories based on liquidity, here’s what Chainalysis concluded:

• M0: Speculative Coins – 4.8 million (23% of the total supply of 21 million bitcoins)
• M1: Service Transactional Coins – 2.3 million (11% of total supply)
• M2: Investment Coins – 6.4 million (30% of total supply)
• M2: Likely Lost Investment Coins – 1.5 million (7% of total supply)
• M3: Lost and Unmined Coins – 6.1 million (29% of total supply)

What Can We Learn from Bitcoin’s Total Money Supply?

As you can see, investment coins make up the largest chunk of bitcoins. More bitcoins are being held for investments than any other category.

This data is significantly different from the data collected between December 2017 and April 2018. During this period, new speculators (M0) flooded the market while long-term investors (M2) liquidated at higher valuations.

This shift wasn’t seen in the latest data analysis. We saw big changes in bitcoin’s money supply from December 2017 to April 2018. From April 2018 to August 2018, however, we haven’t seen the same changes.

“All the monetary aggregates have been extremely steady over the summer months,” writes Chainalysis in their report. “Specifically, the amount of bitcoin held for speculation (M0) has remained stable between May and August at around 22% of available bitcoin. Similarly, the amount of bitcoin held for investment remained stable during the summer at around 30%.”

Here's what all of this means, according to Chainalysis:

“In our view, this is a sign of a market less sensitive to hype, where each news item does not have the ability to significantly push bitcoin prices up or down.”

Instead of a large chunk of bitcoins being reserved for speculation, bitcoin’s money supply is dominated by long-term investors who care little about short-term gains or drops. That means less movement on positive or negative news.

“The market seems to have recalibrated after the entry of so many new market participants with different beliefs and expectations than those who held bitcoin prior to 2017.”

Another important thing to note from this latest analysis is that investors seem unaffected by the ongoing bear market. Generally speaking, investors haven’t sold their bitcoin. Investors haven’t panicked and liquidated their holdings. Instead, as they continued to hold throughout the summer, it suggests they believe in the long-term value of bitcoin.

Another inference from this data is that bitcoin is in the hands of more people than ever before. Between December 2017 and April 2018, many long-term hodlers of bitcoin sold $30 billion of bitcoin to new investors. “Whales” cashed out some of their gains, and more people own bitcoin today than at this time last year.

“The first challenge of adoption – getting cryptocurrency into people’s hands – has been overcome, but we are now waiting to see what the next stage of adoption looks like.”

You can read the full bitcoin money supply report from Chainalysis here.