Disclaimer
The on-chain data I use to compile the tables below do not completely align with the on-chain data found via others sources like Glassnode and CryptoQuant. I cannot fully explain the reason for the differences nor can I confirm which sources are most accurate. For this and other reasons, I have come to trust only my own analysis when trying to explain and/or predict Bitcoin’s price action (PA). Whether you too find my analysis useful is for you to decide, but I can assure you that some of my claims and/or predictions differ, often markedly, from other claims and/or predictions you may see on Crypto Twitter (CT) or elsewhere.
Introduction
Below are three tables illustrating changes to the distribution of active Bitcoin (BTC) addresses and coins throughout the month (NB: the same tables are posted throughout the article to minimize the need to scroll).
The table legend is as follows:
Analysis
July 2021 was yet another wild month for Bitcoin (BTC). Initially charting the same dismal course as the previous three months and down as much as 16.4% as of July 20, price suddenly and dramatically reversed course, ending the month up 18.4% after an incredible run of 10 consecutive green daily candles. BTC reached its peak daily closing price of $42,238 (on Coinbase) on July 30, ending the month just slightly lower at $41,495 after opening the month at $35,060.
As with virtually every other month, active addresses ebbed and flowed depending on the price action (PA). However, PA seemingly impacted investor groups differently. For example, Blue Whales (BWs) and Great Whites (GWs) ended the month at or near their lows in terms of active addresses despite the rebound in price while Orcas, Tiger Sharks (TSs) and Fish all ended the month at or near their highs. Most notably, IMO, is the evolution of 20 new Orcas during the month (excluding the two devolved BWs), a sure sign of renewed institutional investment (discussed in more detail later).
Perhaps most intriguing, however, is the loss of Minnows throughout the month. As shown above, Minnows reached their low on July 20, which is unsurprising given that July 20 is also when price reached its low for the month. However, Minnows seemed reluctant to return even after price started recovering on July 21. In fact, they didn’t start returning in force until the final three days of the month (not shown). As such, while Minnows added about 118K to their school over the July 20-31 period (37.484M - 37.366M), they ended the month with 376K fewer in their school than they started with (37.860M - 37.484M). There are at least two possible explanations for this Minnow exodus: 1) many Minnows were so traumatized by the PA through July 20 that they were too fearful to return even after price started recovering; 2) despite the recovery, some Minnows may have felt that they were too late to return and thus sought out potentially higher returns in alt coins, which didn’t rally as quickly or as robustly as BTC when the turnaround began. Whatever the explanation, this loss of Minnows led to an overall contraction of 253,785 active addresses in July, as shown below.
Even with this contraction, network adoption remains robust overall. Nearly 4.9M addresses have been activated since the beginning of the year, illustrating just how quickly the Bitcoin network is growing. This growth is even more remarkable given the turbulent PA throughout 2021, with price only now starting to recover from its third and most extreme correction of the year. Imagine what the rate of adoption will look like when the next bull run commences in full, akin to that of Q4 2020?
As shown above, Orcas were the dominant group in terms of coins during the month, netting over 20K new coins (excluding the 166K coins shed by the two devolved BWs). With the net increase of 20 new Orcas in July, the data suggest that each new Orca just cleared the threshold to enter the group, at ~1K coins per Orca. Still, with price averaging about $35K during the month, that is equivalent to 20 new entities each investing $35M of new capital into BTC.
Tiger Sharks and Fish also added a significant number of coins to their bags, actually adding more coins combined (28K) than did the Orcas. With a combined 7.2K new Tiger Sharks and Fish joining the network, that is an average investment of about $136,000, or 3.9 BTC per address, assuming an average price of $35K/coin.
Perhaps most impressive is the fact that Minnows added to their stockpile as well despite shedding 260,900 members throughout the month. In other words, remaining Minnows (37.484M) added 1,663 coins to their collective stockpile, substantially increasing the average number of Satoshis (Sats) held by each Minnow. A whole new group of hodlers in the making.
In terms of exchange flows, coins started coming off exchanges again in July after seeing inflows in May and June. As shown below, 65.5K coins came off exchanges in July, which, importantly, excludes the Kraken transfer of 99K coins on July 28. Kraken later confirmed on Twitter that the initially reported outflow was actually an internal wallet reorganization. Again, the table below excludes that mislabeled outflow, meaning that 65.5K coins definitely came off exchanges during July. That said, recent reports about increased regulation of exchanges may have induced at least some investors to preemptively pull their coins off certain exchanges. As such, it is important to see whether/how many of these recently outflowing coins reemerge on perhaps other exchanges over the coming weeks.
Whatever the eventuality, it is clear that coins are once again flowing off exchanges, which is seen as bullish for future PA: fewer coins on exchanges = fewer coins available for sale = supply shock = increased price. While far from a perfect correlation, exchange outflows are definitely more bullish than bearish.
That said, and as shown below, the two main US exchanges - Coinbase and Kraken - experienced significant inflows during July. In fact, these two exchanges alone accounted for almost all of the exchange inflows in July.
These inflows suggests that US institutions remained on the sidelines in July despite institutional investment emerging elsewhere in the world (recall that 20 new Orcas evolved in July and that two of the largest non-US exchanges - Binance and Huobi - each had outflows in excess of 40K coins in July, as shown above).
These findings align with the longstanding practice that US institutional investors reduce their trading/investing activity during the summer: “Sell in May and go away,” as the saying goes. For this reason, I suspect Coinbase and Kraken will see net-neutral flows or perhaps even inflows during August, just like they did in July. That said, I suspect they will resume their pattern of outflows come September, and perhaps dramatically so, depending on BTC’s PA during August.
Conclusion
As explained earlier, BTC got off to a rough start in July, dipping as much as 16.4% by July 20 before staging a remarkable comeback, a comeback so strong that price ended up 18.4% for the month (a total swing of 34.8%). While many explanations for the sudden reversal abound, I personally believe it is due almost solely to the B-word conference, which not coincidentally, was held on July 21. More specifically, while the conference failed to live up to many expectations, I think it was important because it quelled a lot of the fear, uncertainty and doubt (FUD) about what Elon Musk might say about BTC during the conference. When he revealed that SpaceX owns BTC, he had not sold any of his personal holdings, and that TSLA had not sold any additional BTC after its initial 10% sale, I think the market breathed a huge sigh of relief. In fact, I think the subsequent bullish pump was just strong enough to trigger the spectacular short squeeze that ensued, and that short squeeze was spectacular enough to reverse market sentiment as a whole, such that BTC has been off to the races ever since.
In short, and like it or not, Elon’s opinion continues to hold sway over BTC and other cryptocurrencies, in my opinion. Fortunately, his influence seems to be waning, but make no mistake, his voice still resonates. It is for this reason that I am not convinced about the sustainability of the current pump. i.e., Just as price faded after the initial pump on news of El Salvador adopting BTC as legal tender, I think the catalyst for the current pump is also based more on news than an organic increase in network adoption. Now, this is NOT to say I think price will retrace all the way back to $30K or below, but I do think price will at least retest the mid-$30Ks during August. How quickly price retraces or for how long remains to be seen, but again, I remain firmly of the opinion that BTC needs a steady injection of US institutional investment for price to move sustainably higher. The good news is that I think we’ll see such investment starting again in September. Many US institutions have theoretically been getting their ducks in a row since the beginning of 2021 and now they’re just looking for some price stability before initiating their positions. Provided price stabilizes in August, I think BTC could be in for a spectacular Q4 of 2021, much like that of Q4 2020.
Go #BTC.