While volatility is back in global financial markets, only about one in four bitcoins that weren’t freshly mined moved between the anonymous online addresses holding them in the last six months.
That’s a huge change from late 2017, when about half of such bitcoins were active, according to data compiled for Bloomberg News by researcher Coin Metrics. Bitcoin hadn’t hit such low levels of activity since 2015, before the massive influx of investors that flocked to the cryptocurrency during its record price run-up late last year, Coin Metrics said.
“It tells me we are still in a bitcoin recession,” Nic Carter, co-founder of Coin Metrics, said in a phone interview.
About 50% of bitcoins — not included newly mined coins — moved in the last 12 months, down from about 60% in late 2017, according to Coin Metrics. There are about 17 million bitcoins in existence. Because of the rules governing the mining process, where new coins are awarded for completing transactions, only 4 million additional ones will be issued.
The reduction in activity is all the more surprising considering that so many new investors, particularly speculators, jumped in late last year, when bitcoin’s price reached an all-time high of almost $20,000. Many of these investors bought hoping to make a quick profit, and got stuck holding the coins as prices plummeted. The going assumption has been that if bitcoin’s price rallies again many of them will sell. But that may be off base.
Historical data show that a large swath of bitcoins doesn’t ever trade. Up to 40% of bitcoins are lost or kept in what’s known as cold storage, Coin Metrics estimates. Another 25% to 35% is semi-liquid, so they come online only during bull runs, when long-term holders sell stakes to cash out gains. And during price downturns, only about 30% of bitcoins are available, Coin Metrics said.
“I think it helps us assess ‘true liquidity’ in the idealized, global order book sense," Carter said. "To some degree, I think it lets you roughly calibrate the effect of future inflows."
Even though its daily trading volume is down nearly 80% from its January peak, about $4 billion of bitcoin changes hands daily, according to CoinMarketCap.com.
“That does not mean there is a liquidity issue,” Gil Luria, director of institutional equity at DA Davidson & Co., said in an email. “Four billion of volume a day means almost any investor in bitcoin can liquidate their entire position within one trading day.”