A Deep Dive Into Crypto-Asset Ownership
Using IntoTheBlock’s new indicators to spot patterns of whale accumulation, bull markets coming to an end and more
At IntoTheBlock we have been one of the biggest proponents of the value of on-chain data. Being a public and transparent asset class, crypto provides a deeper look into what goes behind every transaction than previously possible. By processing this and turning it into actionable indicators, you obtain highly valuable information, or— in crypto trading parlance — alpha leaks.
One of the categories of indicators encompassing this value is what we classify under “Ownership”. Here users can see key metrics covering the distribution and activity taking place across diverse groups of market participants making up a crypto-asset’s “capital stack”.
Given the relevance of this category and high user demand for it, we decided to release a new set of indicators diving deeper into ownership patterns, dubbed Ownership v2. Throughout this piece we’ll discuss these indicators and how you can use them to better research and invest in crypto markets, while providing compelling examples for major crypto-assets. As always, this is not financial advice!
Ownership by Concentration
There are two major attributes by which we classify holders of a crypto-asset: by the size of their ownership and by the length of time through which they have held.
In terms of size, IntoTheBlock previously introduced three categories to label holders based on the concentration of their holdings:
- Whales — Addresses that own over 1% of circulating supply
- Investors — Those that own between 0.1% and 1% of circulating supply
- Retail — Addresses with under 0.1% of circulating supply
In the Ownership v2 release, we introduce the ability to track each of these categories since a crypto-asset’s inception. This is useful to monitor changes in the composition of holders over time and assess their investment behavior.
Let’s take a look at one of the most peculiar crypto-assets, Dogecoin, to understand how it’s ownership concentration has progressed.
As many will know, Dogecoin was created in 2013 as a joke. Just because it started as a joke, however, doesn’t mean investors didn’t put serious money into it.
In the depths of the 2018 bear market, a few whales bet aggressively into DOGE. This is reflected in the Historical Concentration indicator, where whales’ share of Dogecoin increased from under 30% to nearly 50% within a few weeks. This increase in whales’ ownership can be seen as a sign of high conviction preceding the bull market.
A few years later, as Dogecoin hit new highs in January 2021, we observed retail interest pick up, with their share of DOGE concentration growing consistently throughout the year as the market got frothy.
To complement this indicator, we are also releasing three metrics covering the transaction activity of “large holders’’. Similar to exchange flows, these indicators follow the inflows and outflows coming into and out of a group of addresses, in this case addresses with 0.1% of circulating supply or more (whales + investors) are classified as large holders.
Using MATIC as example, we observe large the netflows — that is, the inflows minus outflows — large holders receive over time.
In MATIC’s case, the five highest spikes in Large Holder Netflows (shown in the green rectangles) preceded significant rallies of 50%+. This could suggest strong buying activity from the largest MATIC investors.
It is worth mentioning that this indicator includes smart contract addresses. By diving deeper into MATIC holders, we can see the largest holder is the MATIC staking contract with 25% of supply. Therefore, these spikes could also be attributed to a high amount of interest from holders looking to stake their tokens. This scenario is still positive for MATIC, given that users are willing to deposit their tokens in a smart contract despite being illiquid, highlighting their conviction.
Overall, these are two examples of how users can spot market-shaping activity based on changes in the concentration of crypto-assets. Finally, while these can be useful, it is worth noting that the market can be nuanced in the sense that these don’t necessarily apply the same to any crypto-asset given the varying nature of each asset in an ever-evolving space.
Ownership by Time Held
The second main attribute by which we classify addresses is by the amount of time they have held their investments. Here we look at the weighted average time an address has been holding, split into three groups:
- Hodlers — Addresses that have been holding for over one year. These are seen as long-term investors
- Cruisers — Addresses holding for over a month but under a year. These are mid-term or so-called swing traders
- Traders — Addresses holding for under a month. These are short-term speculators
While these groups were already introduced in v1, in v2 we expand their time-frame and add the option to visualize them based on their total holdings.
By looking closely at the historical composition of these groups for ETH, we see two different panoramas for holders in 2017 vs beyond 2019.
Most of crypto in 2017 was used purely for speculative purposes and Ethereum was no exception. As ICOs took over as the main use-case on Ethereum throughout 2017, most ETH holders were considered either Traders or Cruisers.
However, this started changing in 2019, around a year later after the first usable decentralized applications went live. These new use-cases likely played a key role in the sustained growth of Hodlers as these long-term addresses may want to keep their holdings in order to be able to take advantage of these applications.
Some may argue that the growth in Hodlers is due to lost wallets not being able to transfer out their crypto. While this may be a factor, consistent growth in the number Hodlers has only occurred in few assets such as Bitcoin and Ether, with other crypto-assets such as Litecoin and Dogecoin actually seeing a decrease in Hodlers throughout 2021.
It is also worth considering the volume held by these groups. Through the Balance by Time Held indicator we measure the aggregate amount of holdings each group owns. This indicator in particular can be very telling of the market’s nature at a given point. Let’s have a look at it for Bitcoin.
Hodlers tend to decrease their holdings late into bull cycles (black arrows) while Traders rush in to buy (purple circles). This occurred through the double bubble in 2013, as well as in late 2017 and in 2021. Then, a few months after Hodlers begin to increase their balance again, we tend to see the beginning of a new bull cycle.
As the saying goes, “history doesn’t repeat itself, but it often rhymes”. Here we can see how that has been the case for Bitcoin and how taking a look at these long-term shifts in ownership can be helpful when attempting to time the market.
Holdings Distribution
Similar to the concentration indicators, through the set of metrics categorized as Holdings Distribution, we display an overview of the volumes held by certain groups, though in this case in a more granular manner.
This is done through groups that increase by a factor of ten (e.g. 1–10 BTC, 10–100 BTC, etc.). Through the Holdings Distribution Matrix we obtain a quick snapshot of the current state of these groups.
Through Bitcoin’s Holding Distribution Matrix, we see that the group with 1k to 10k BTC, which makes up only 0.01% of addresses, holds the largest share of supply worth $215 billion.
The high concentration of Bitcoin at this level, makes it a key group worth following closely. Using the Balance by Holdings indicator, we can track if the addresses holding between 1k and 10k BTC are adding to their positions or decreasing them.
Here we observe a similar image to one shown through the Balance by Time Held, where addresses sell late into the bull market and accumulate early in the beginning of the next one.
In particular, though, the large increase in holdings at the bottom in late 2018 is worth highlighting, pointing to the strong conviction from big players at the time. Another pattern worth highlighting is how the balance held by these addresses grew slightly in the summer of 2021 after a 50% crash, but continued to drop after reaching $60k again.
Finally, the number of addresses with a given amount of holdings can be representative of an asset’s broader adoption. Particularly, amounts such as 0.1 BTC or 1 ETH are high enough to show holders are serious about their investments but low enough to be attainable.
Here we observe the growth in the number of addresses holding between 1 and 10 ETH. Although there are no clear short-term patterns aligning with ETH’s price, this long-term uptrend is a positive indication of increasing adoption. The number of addresses with 1 to 10 ETH recently surpassed the milestone of 1 million addresses and has continued to climb since.
This concludes a comprehensive overview of IntoTheBlock’s newly-released ownership metrics. Hopefully this helps readers understand how many of these indicators can be used to spot shifts in the market structure, as well as longer-term trends. Though the nature of these indicators can vary by asset and over time, they ultimately provide invaluable insights into the markets’ main players.
