Article Summary:
The article delves into the realm of Bitcoin blockchain analytics, providing fresh insights and trends observed within the blockchain. With a focus on the importance of looking beyond simple price indicators, the authors introduce the concept of “Transit Volumes” as a metric to consider. Transit Volumes refer to the total volume of funds transferred through specific transit addresses, which receive funds from one source and subsequently send out all received funds, resulting in a zero balance. The authors highlight that Transit Transfers constitute a significant portion of all Bitcoin blockchain transactions, accounting for over 91% of transacted Bitcoins in 2022. They explore the dynamics of transit behavior over the past 18 months, revealing a notable drop in transit volumes in November 2022. This decline, potentially influenced by the actions of major players and the association of transit addresses with OTC deals, raises questions about Bitcoin’s evolving role as a settlement asset versus a store of value. The authors conclude by teasing their next research step, proposing a further classification of transit volumes based on transaction amounts to gain a comprehensive understanding of changes in transit behavior among different categories of cryptocurrency adopters.
Our previous article called “Don’t trade solely based on previous prices of an underlying asset!” has been published at the end of February 2023. There we invited traders to not base their trading decisions solely on some price-related indicators but to look outside the box and think of other useful metrics. And we proposed a particular metric invented by Dr. Kirill Kretov that is called “Transit Volumes”. To quickly remind you, “Transit Volumes” refers to the total volume of funds transferred through the identified transit addresses. Where a “transit address” refers to a specific type of address observed on the Bitcoin blockchain. These addresses receive funds from one source and subsequently send out all the funds they have received, resulting in a balance of zero.
Why do we put so much importance on those Transit Transfers? Simply because they make the biggest portion of all transactions happening in the blockchain of Bitcoin. According to the research conducted by Dr. Kretov – “Life of Bitcoin Blockchain in 2022”, more than 91% of all transacted Bitcoins are attributed to transit volumes (making more than 514 million BTC transited during 2022). This was a final yearly figure. In the present post, we are going to look at how transit behavior has changed in dynamics through the latest 18 months, starting at the beginning of 2022 and ending now in July of 2023.
In order to illustrate it, Dr. Kretov grouped consecutive thousands of blocks, summed up the volume of all transactions within those blocks and separately calculated how much of the total volume can be attributed to transit transfers. For example, if on block 735205 an address 3ABC… received 100 Bitcoins and on block 735678 sent these 100 Bitcoins to an address 1XYZ…, the 3ABC will be considered a transit wallet. And this 100 BTC will be added to the “Transit Volume”. Note that the actual transit has taken place within 1000 blocks (from 735001 to 736000). May the transfer from 3ABC… to 1XYZ take place on block 736002 it would go unnoticed, because the outgoing transaction happened in the next consecutive thousand. And that is the reason why it was decided to extend from consecutive hundreds to thousands of blocks – to catch more transit volume, but still short enough (roughly one week of transactions) to see how preferences have changed over a year and a half time period. Below you can see a chart, depicting the results of this analysis:
The chart reveals a significant drop in transit volumes in November 2022, which coincided with the “FTX story.” Transit volumes decreased from above 80% (with some weeks reaching 90%) to an average range of 60%-70%. While there were two spikes in January and March 2023, the overall trend remained within the corridor of 60%-70%.
Can we try to conclude something from that? There are two possibilities, number one is that big players stopped kicking bitcoins all over the blockchain (as Binance actively did at the end of 2022). Another possibility brings us back to the idea, discussed in our previous article – transit addresses are often associated with certain behaviors, such as OTC (Over-the-Counter) deals, where large amounts of bitcoins are traded between whales (it’s worth noting that not all transit addresses necessarily correspond to OTC deals). And since the number of useful transit transfers has suddenly reduced, it may mean that in 2023 Bitcoin is used less as a settlement asset, but more as a store of value.
It’s important to note that these conclusions are based on the authors’ analysis and interpretations of the data. The article does not provide definitive explanations but rather presents potential explanations for the observed changes in transit volumes on the Bitcoin blockchain.
What could be the next step for the present research? Further, classify the transit volume by the actual amount transferred within each transaction (since a transit of 2 Bitcoins within one transaction is not the same as of 2000 Bitcoins). Having this classification will help to understand changes in transit behavior during the last 18 months for all sorts of number 1 cryptocurrency adopters (ranging from plankton and shrimps to white sharks and whales). If you are interested in such data, stay with us, we may publish it next week.
Teaser for next article:
We are poised to embark on a deeper investigation into transit behavior by implementing a classification system based on the actual transaction amounts. Recognizing that a transit involving 2 Bitcoins significantly differs from one involving 2000 Bitcoins, we aim to provide a more nuanced understanding of changes in transit behavior over the past 18 months. This forthcoming classification endeavor encompasses all categories of number one cryptocurrency adopters, ranging from modest plankton and shrimps to formidable white sharks and whales. Our intention is to comprehensively explore and elucidate the dynamics of transit behavior within the cryptocurrency ecosystem. If you possess an insatiable thirst for data that delves beyond superficial observations, we urge you to stay tuned. The publication of our findings is imminent, scheduled for release next week.