70% OF BITCOINS HAVE BEEN HOARDED FOR SIX MONTHS OR MORE
Recently, a metric was run on the Blockchainthat analyzed the distribution of Bitcoin wealth throughout history. Any Blockchain study can draw a wide range of conclusions, but a paper by Tim Swanson, author of the blog “The Great Wall of Numbers,” draws an interesting conclusion.
As much as 70% of Bitcoins have made no movement in the past six months because of the price drop since June. According to the data, which cannot lie, movement of Bitcoins experiences a particularly strong growth during bull markets – when the price of Bitcoin in fiat currency is higher. Put more simply, most transactions happen when Bitcoin is valued more by those accepting it.
This is a sobering chart for advocates or entrepreneurs within the merchant payment processing vertical. What this shows is that despite the near quadrupling of merchants that now accept bitcoin as payments (this past year increased from ~20k in January to ~76k through September), on-chain activity has not seen a corresponding increase by consumers. They are all effectively fighting for the same thin slice of liquid coins, a segment which empirically has not grown. –Tim Swanson
Fiat Price Holds Great Sway in Decision to Hoard Bitcoin
One might wonder why. Certainly, there are those among us who buy, buy, buy when the price is low, so it’s not as if there is not a market for the coins when they are cheap. The answer is simple: many people who hold a great deal of Bitcoins paid much more for them than they can now get on the market or in goods and services, and aren’t willing to fire sale them.
This is much like the gold market. When the price of gold is down, wise gold traders put their heads down and hang on unless they have no choice. The value of gold skyrockets when everything else goes to hell. Bitcoin has many parallels with gold: the less faith people have in fiat currency and government -backed forms of exchange, the more they are likely to value Bitcoin and other non-traditional forms of currency.
Sadly for the hard-core gold bugs, there will never be a new gold standard. There will never, ever be a return to a gold standard, not even if the world implodes. If there was gold would have to be a million dollars an ounce. –Forbes
Still, throw a gold bar on the counter of the pawn shop and it’s going to bring a lot of fiat in return. Gold will always be valuable, and it will always be scarce. But presently it is a niche market because of too much scarcity, and we cannot allow the same problem to exist for cryptocurrencies. As members of the new economy, it is our duty to grow it. We benefit down the line for it – self-interest is the drive behind liquidating and using and investing Bitcoin, whereas obstinateness, fear, and a lack of faith are the primary motivating factors in hoarding.
What Can Be Done?
For starters, more Bitcoin-only businesses could be founded. A disconnect between fiat and Bitcoin at the cash register would also help. What I mean to say is, Bitcoin entrepreneurs valuing things in terms of Bitcoin as opposed to how much fiat they can get for a given amount of Bitcoin would also help. We could simply leave the valuation to the speculators and build our economy, which is one of the goals of the Blockchain anyway.
True value is created when goods and services are made available for a form of currency. For instance, a Walmart gift card spent on gasoline gets the buyer three cents off per gallon although the purchase of the gift card does not cost anything. This is a form of alternative currency. There is no explicit reason for Walmart’s doing this other than that it guarantees a certain increase in sales of gasoline.
For instance, someone could open a competitor to Amazon MP3 and iTunes which charged a flat rate of 100,000 Satoshi per song. They would be doing a service to the currency if they refused to change their rate no matter what speculators said the price in a given week. Other digital goods and services could do the same. The first effect of this is that a host of new stakeholders have an interest in keeping the price stable. The next is that a whole subset of the economy is not controlled by the minority of bag holders and speculators who dictate the value of almost everything.
In the end, no one expects Bitcoin to remain low in price, but this does not excuse their hoarding behavior which fails to solve the problem. If you’re holding five BTC and you want to see the price rise, get out there on the exchanges and incrementally sell it upward, or incrementally buy upward – that is, either sell out or buy out of the slump.
Because for all its parallels with precious metals, Bitcoin is not a gold bar that you can hide in your closet. The Blockchain gives you away, and the public – the ultimate jury on how much the currency is worth – knows that the coins are being hoarded. What incentive do they have to buy if they get the feeling that the market is rigid rather than liquid?
We can all agree that cryptocurrency is the wave of the future. At this point, it would be a shame to see Bitcoin overtaken by some other coin with less appeal and less agency – but no one should write off that possibility, either. Availability is an important factor for adoption, as well, and many of the altcoins are promising for different reasons.
Thus I say: it is probably a great time to start pumping viable altcoins full of fiat value. If large Bitcoin holdings want to keep all the coins to themselves, we can’t let the idea die with their portfolios. NXT, DOGE, MEGA, and HTML5 all have loads of potential. Woodcoin (LOG) is a coin with a specific focus on longevity as opposed to short-lived profit motive.(Note: this is not professional investing advice!)
My bottom line is a message to large holders: have some faith and let some of that hoard go. Invest it or spend it at the retail level. Help us improve this Blockchain data, because you’re making Bitcoin look bad, and that’s not good for anyone.
What do you think of the attitude of those who hoard bitcoin and altcoins instead of using them? Comment below!
Images from Pixabay, Reddit user jratcliff63367, and Shutterstock.
Disclaimer: the author is a contributor to the Woodcoin and HTML5Coin projects and the owner of the Woodcoin forums.