Data Shows Most Bitcoin Held for Long-Term, NY Fed Argues It’s Not New Money

  1. Of the estimated tens of millions of people who hold Bitcoin and over five million users visiting exchanges weekly, 2020 has so far shown that approximately 340,000 of them are active weekly Bitcoin traders, according to on-chain data from Chainalysis.

As of June 2020, the analytics firm categorises the roughly 18.6 mln Bitcoin that has been mined into three buckets based on its movements.

There is the 60% estimated to be held by entities — either people or businesses — that have never sold more than 25% of Bitcoin they’ve ever received but often held on to their bag for long-term investment; the 20% (or about 3.7 million Bitcoin) that hasn’t moved from its current set of addresses in five years or longer which are considered lost; and the 3.5 million Bitcoin (or 19% of all mined Bitcoin) that moves frequently mainly between exchanges which are supposedly for trading.

It says Bitcoin’s price has to rise to a level for long-term investors – estimated to be holding roughly 11.4 million Bitcoin or about 60% of total circulating supply – to be willing to sell since the majority holding more of the top cryptocurrency are reportedly treating it as digital gold (i.e. an asset to be held for the long term) though supported by an active trading market for those who prefer to buy and sell frequently.

Nowadays, with the various stimulus packages being rolled out by major economies to cushion the impact of the coronavirus pandemic on their countries, the projected inflation such moves would bring to their currencies could render holding cash unwise due to a likely drop in value and Bitcoin quite attractive.

Chainalysis’ research comes as members of the Federal Reserve Bank of New York’s Statistics Group wrote to argue that Bitcoin is not a new type of money but rather a new type of exchange mechanism that can support the transfer of monies as well as other things.

Michael Lee and Antoine Martin concludes that they chose to bring out the point because it is important to be clear about what is new about Bitcoin. They say history provides lessons about “what makes a good money as well as what makes a good transfer mechanism” and these lessons “could help cryptocurrencies evolve in a way that makes them more useful” going by their relevance.

They categorized Bitcoin as falling under monies transferred electronically without a third party and not backed by anything. Stablecoins, as cryptocurrencies whose value is (in principle) tied to assets, and tokens from initial coin offerings (ICOs) which issuers offer non-necessarily legally binding rights to a product or service in the future, are also roped into this category.

Before the impact of the coronavirus pandemic started having a toll on economies, the debate has always been about what Bitcoin best serves for: a currency, a store of value or a medium of exchange. Calling Bitcoin fiat, rather as an alternative to it, pushes the narrative that there is no difference between a central bank-issued currency and other forms of money that are not.

The newness of the “phenomena that have emerged in the post-Bitcoin era”, the Fed Reserve Bank authors say, is their ability to carry out the transfer of monies easily without a trusted third party.

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