Figure 1
Despite the current slump in crypto prices, the nascent digital assets class has come a long way in the year or so. A diversified list of use cases has been the driving force behind this growth. Cryptocurrency pioneer Bitcoin, the biggest smart contract platform Ethereum & U.S-pegged stable coins (USDT, USDC) are prime examples in this regard. And we will look at some data to support this conclusion.
Looking at the transactional data of cryptocurrencies volume in Q1 2021, the following four segments account for the majority of transactions across the spectrum of the digital asset — Stablecoins ($869 billion), Ethereum ($840 billion), Wrapped ETH ($635 billion) & Bitcoin ($623 billion). wETH or Wrapped Ethereum is an ERC-20 token of equivalent value to Ethereum commonly used on DeFi platforms.
Bitcoin is primarily considered a long-term investment or store of value. The second-largest crypto, smart contract pioneer and the driver of decentralized finance (DeFi), Ethereum, often gets eclipsed by BTC. In actuality, ETH had more transaction volume than Bitcoin in Q1 2021. Stablecoins are cryptocurrencies pegged to the price of existing non-crypto assets. The two most popular stable coins, Tether and U.S. Dollar Coin (USDC) are pegged to the U.S. dollar. Stablecoins have a higher collective transaction volume than both Bitcoin and Ethereum.
According to the Chainalysis Market Intel data, Bitcoin is primarily held as a long-term investment. They reach this conclusion based on the breakdown of the types of wallets holding Bitcoin compared to wallets holding other assets. The three categories are Investors, Traders & Services. Investors are self-hosted wallets that have held 75% or more of all cryptocurrency value they have ever received. Similarly, traders have held less than 75% of all cryptocurrency value ever received. Services have wallets hosted by services such as exchanges.
Bitcoin Driven by Institutional Investors
Figure 2
The data suggests that 73% of Bitcoin is held by investors, versus just 58% for Ethereum and 43% for the popular stable coin USDT_ETH, which is an ERC-20 token version of Tether (Figure 2). Meanwhile, just 7% of all Bitcoin is held by traders, who tend to seek shorter-term gains by trading between a wider variety of assets, versus 18% for Ethereum and 14% for USDT_ETH. It is evident that long-term investors are far greater in BTC than short-term traders.
Bitcoin’s use case as a long-term investment becomes even more clear when we look at the second chart (right) — the average Bitcoin held in a self-hosted wallet was acquired roughly 150 weeks ago, versus 75 weeks for Ethereum and six to seven weeks for popular stable coins Tether and USDC. BTC is held by investors for twice as long as Ethereum and the small time frame for stable coins highlights the use case as a transactional medium rather than an investment asset.
Further analysis shows that institutional investors likely accounted for 69% of all Bitcoin transaction volume during the time period studied, based on the sizes of the individual transactions.
DeFi boom Contributes to ETH Growth
Figure 3
DeFi has seen steep growth in recent times. The DeFi transactions that accounted for between $2 and $3 billion in total weekly volume in Jun. 2020 has now risen to $20 billion per week recently. There were times when the volume reached 3x that value. And since Ethereum is powering this DeFi rush, the second-largest crypto has seen massive growth in the last 12 months.
DeFi has actually given rise to other services like NFTs, decentralized exchanges, and automated loan platforms. And this diversification might provide further impetus to ETH. The chart above (Figure 3) highlights how DeFi has been the single biggest contributing factor accounting for the Ether transaction volume growth — taking an exponential trajectory since Q4 2020.
Stable coins Leader in Trade Intensity
Figure 4
And finally, coming to stable coins, they have a higher collective transaction volume than both Bitcoin and Ethereum (Figure 4). Owing to their pegged nature & the perceived stability, stable coins allow traders to lock in the value of their cryptocurrency in what amounts to U.S. dollars, shielding themselves from the volatility of cryptocurrency without having to move funds off exchanges.
The chart above looks at a metric called trade intensity — measures the number of times a coin is traded between the time it’s deposited to an exchange and the time it’s withdrawn. It compares the trade intensity for Tether, the most popular stable coin, versus Bitcoin and Ethereum. Although Tether’s trade intensity has varied over time, nonetheless, it has the highest trade intensity by far in most months.
Needless to say that Stable coins are by far used as a settlement mechanism — especially crypto-to-crypto (C2C) exchanges.
Originally Published on Medium
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