Half Of The Remaining Non-Minted Bitcoin Supply Is ‘Spoken For…’

…Times, they are a-changin’…

Ryan Radloff
Aug 17, 2018 · 11 min read

Who in the world owns this stuff? And who will?

These are the 2nd and 3rd most common questions I get from legacy investors searching for mental models to project value based on future user base.

What they are really (rightly) grasping for is potential future demand, based on the classic concept of Total Addressable Market (TAM).

Just a few years back data was scarce, population surveys were rare, and the small crypto population meant that necessary sample sizes were prohibitive to conduct; but in the immortal words of Bob Dylan: “Times, they are a-changin’.”

This year alone we’ve had multiple studies charting crypto knowledge, interest and penetration across western populations — three recent ones:

ING International Survey (sample size: 14,828, source)

  • 66% of Europeans, 57% of Americans and 70% of Australians have heard of cryptocurrency.
  • 25% of Europeans, 21% of Americans and 15% of Australians expect to own cryptocurrency in the future;
  • 9% of Europeans, 8% of Americans and 7% of Australians currently own some cryptocurrency.

Global Blockchain Business Council Survey (sample size: 5,761, source)

  • 6 out of 10 Americans have heard of Bitcoin.
  • Note: This is more than 2x that of a similar survey conducted in 2013

Bank of Canada Survey (sample size: 1,997, source)

  • Roughly 2/3 of Canadians have heard of Bitcoin
  • Less than 3% of Canadians own any Bitcoin

The ING survey caught my eye in particular because the results of expected future ownership can, for the first time I remember, allow me to begin building a data-driven base from which I can answer at least a component of the total addressable market question.

At least 99M People intend to own crypto, but don’t yet.

If you multiply the percentage difference between consumers that own cryptocurrency, and those that expect to, with the populations of the respective regions you can get an idea of the number of additional people likely to demand cryptocurrencies in the future.

  • World Bank populations statistics for respective regions: ~692 MM
  • Population of people who expect to own crypto in the future: ~157 MM
  • Those who already report owning crypto: ~58 MM

This numbers comes out to be roughly 99 million people across US, Australia and Euro Area who intend to own crypto, yet do not already.

Holding at current prices ($6500), if 99 million consumers want to hold as little as £100 in bitcoin, that amounts to an increased demand of ~1.9 million bitcoins. Said differently:

These demand numbers indicate that almost half of the remaining non-minted bitcoin supply is “spoken for.”

This is a conservative model, built on simple assumptions (above), backed by real survey data. It’s a starting point; and a much more informed starting point than we have had to date.

…back to the Dylan… “Times, they are a-changin’.”

So why doesn’t price reflect this future demand?

As of today, the 17th of August 2018, Bitcoin is trading around the $6,500 mark. Prices are down 52% YTD and 68% from the highs reached in December 2017.

Meanwhile, the value-proposition of this revolutionary asset has not changed. If anything, new scaling developments such as the Lightning Network, market maturation, regulatory clarity and increased consumer awareness only enforce the previous value proposition.

But, as the market slumps, surely many prospective investors are asking themselves why they should buy now.

Most often I hear this phrased as: Why not risk it and wait for lower prices?

My take — entry point timing is a dangerous game to play…

One of my partners, Meltem Demirors, did a hell of a job covering this point on CNBC using classic dot-com analogs.

A couple anecdotes regarding timing, if videos aren’t your thing:

  1. AMZN took 9 years to recover its 2000 peak price ($106); now at $1870
  2. MSFT took even longer, 17 Years to recover peak ($58); now at $107

If you bought after the pullback in 2000, there were some great values to be had. So why did companies, which are so clearly viable with the luxury of hindsight, take such a long time to reclaim their high valuations from 2000?

One explanation — it took a while to reframe the narrative. Said differently:

When you come down from great heights, the “growth story” is harder to see… and most people then (and now) are investing in the (future) growth story.

These investments involve suspending disbelief and acknowledging that paradigm-shifting business models come with new metrics that only time can vet and uncover.

Note: suspending disbelief is harder in a bear market; albeit this is, ironically, where most of the valuable ‘Buidling’ gets done…

Which leads me to where Bitcoin is now.

Fallen from great heights, the 2017 “growth story” became over-hyped… perhaps now, as with 2014, it’s time for a new narrative?

[ Side bar: Nic Carter and team put together a great piece on Bitcoin’s shifting narratives… well worth the read. ]

These narratives matter because they drive motivation and interest in the ecosystem; which attracts users and talent; who in turn strengthen the ecosystem, improve on the open source software, and build easier points of access to the digital asset.

This influx of talent, time and money leads to: 1) new adoption and 2) new liquidity. Et voilà. Network effects are a beautiful thing.

Have some of these narratives proven inaccurate? Inevitably. Will many still come true? Maybe. We will address this in a different, future post…

The point here is that each narrative attracts more people — for different reasons — into the space. The net influx of talent increases the value of the system while improving access to those still on the side-lines, and the cycle self-reinforces.

With each new wave of large user influx we see a run in price. This is usually followed by another wave of new access points, and the cycle repeats, each time with greater magnitude, enabled by newly increased investor access.

The current narrative of ‘institutions cometh’ has been driving a similar cycle; but let us be clear, in our opinion:

Each Bitcoin speculation hype-cycle since inception in 2009 to date, has been driven by retail buyers.

Meanwhile, much of the current talk in the Bitcoin space is revolving around the perceived incoming flood of institutional money.

We believe this to be slightly off the mark— it’s simply the latest narrative that is attracting people to the Mad Max rally through the desert that is Bitcoin.

All Credit to Mad Max Franchise and Photographer (did not find name)

So what’s our issue? We agree that institutional interest will help drive the next bull run, but perhaps not for the same reasons as everyone else.

We believe that institutions will drive new layers of access; and bring a bit more liquidity, no doubt.

But the reason they will help drive the next run is consistent with every growth cycle that came before:

New attraction, from new masses, will drive new demand; and this increasing demand will be filled through access points created on the back of the last cycle.

The more people who want to play in the proverbial sandbox, the larger the sandbox needs to be, and the more sand you need.

The sandbox is made bigger by every market cycle, meaning more people can play when the next cycle begins. Allow me to expand:

With institutions, consumers can now gain exposure through established brands that they already know and generally trust.

Over the past 2 years, no doubt we have observed a slow growth of institutional interest and participation in the space. This has led to a significant increase in:

  • Trust — as consumers can access crypto through counterparties they perceive as safe and familiar
  • Access — as institutions are given the tools to integrate with cryptocurrencies, they in turn render access to their clients

Sure, consumers have been able to buy outright from exchanges for a while — but each exchange is new; often with a different setup and unfamiliar owners; and you have to move money into them. Even with the best user experience, it’s a bit painful.

When institutions gain more access, they in turn create more access points for retail investors who are uncomfortable leaving their traditional financial surroundings or have capital “locked up” in the legacy financial system.

We have seen the first few steps of this process already:

  1. Fidelity integration with Coinbase last year as an early step to bitcoin in brokerage accounts ✓
  2. Bitcoin ETPs as a next step in democratizing access to retail ✓
  3. Coming Soon: Fully deliverable bitcoin futures after that (see: ICE/Bakkt)
  4. Next Up: The ability to buy bitcoin via legacy brokers, held alongside the rest of a legacy portfolio

While institutional access is great, we suspect retail demand will continue driving the market in the mid-term, albeit through bigger “institutional-sized plumbing.”

In other words, it’s just increasing access that is the good news.

If you’re waiting for financial institutions to lead the way before you take the plunge into bitcoin, don’t be surprised if retail clients beat both of you to it.

Don’t take our word for it — we’ve got data, too

Coinmarketcap has identified 209 regulated and unregulated cryptocurrency exchanges opened between July 2010 and August 2018.

Quarterly growth rates in bitcoin market cap and number of exchanges shows a 72% correlation. While this correlation does not prove causality, it highlights that access points and market value are undoubtedly linked — at least from a historic perspective.

As shown in the chart below, the previous three Bitcoin bull runs of 2011, 2014 and 2017 have led to ever-larger numbers of new exchanges or access points opening, presumably in response to individuals looking to directly purchase cryptocurrencies.

Sources: CoinShares Research, Coinmarketcap

However, there is a distinct difference between previous bull runs and 2017.

The 2017 bull run did indeed catch the interest of institutional players, who are now increasingly recognizing Bitcoin’s value proposition and are responding to their customer’s demand for access to crypto assets.

As such, the following major banks have started offering access to bitcoin products for their clients over the last two years:

Goldman Sachs, Deutchebank, JP Morgan, Morgan Stanley, Barclays, Credit Suisse, Citibank, UBS, Merrill Lynch

Additionally, all of the above (screenshot) offer access to bitcoin investment vehicles of some type.

As an evolution of this trend, organizations like the ICE/NYSE Group in collaboration with BCG, Microsoft, Starbucks and others are now progressing to offer direct physical access to bitcoin through Bakkt.

They have stated their intention to create an “open and regulated, global ecosystem for digital assets.”

This is interesting for two reasons:

  1. Part of the offering includes physically-settled Bitcoin Futures, which unlike the financially-settled CME/CBOE Futures will require the delivery of actual bitcoin on expiry. Subject to CFTC approval, these futures will launch in November 2018.
  2. Bakkt aims to help players spend digital assets through the development of merchant and consumer applications. We assume that Starbucks will spearhead this effort, which, if successful, will further drive Bitcoin awareness through increased points of sale accepting bitcoin.

If you remember nothing, remember this:

  1. Cryptocurrency awareness keeps rising, with hundreds of millions of people now having heard of cryptocurrencies.
  2. 99 million people in Western economies alone are estimated to be seeking exposure to cryptocurrencies. If these consumers were to put £100 into bitcoin at current prices, that equates to demand for 1.9 million bitcoins, more than 10% of minted supply.
  3. Major established financial institutions are already providing institutional-grade access to bitcoin products to millions of clients across the world.
  4. In every previous Bitcoin bull cycle, increased access points that were created in the preceding ‘build’ cycle added to the convenience and capacity for new capital to enter the market. I believe we are seeing this cycle repeat, and yet again in larger magnitude.
  5. Trying to beat the timing game is risky business. Waiting for institutional money to lead the charge might leave you behind while the retail train leaves the station.

Much credit to Christopher Bendiksen and other members of the CoinShares team for the contributions, edits and comments — getting this right is always a team effort.


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