- The explosive growth of DeFi played a huge role in driving ETH adoption.
- Bitcoin had the most decentralized ownership and acted as a buffer against price volatility.
Despite the ups and downs, the vast universe of cryptocurrencies continues to capture the imagination of the public and major corporate investors alike. Because of their perceived strengths and potential for big returns, seasoned traders actively analyze key on-chain metrics to better plan their investments in these assets.
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Ethereum Is The Most Kept Crypto Asset, But…
Ethereum [ETH]the second-largest cryptocurrency by market capitalization, proved to be the most widely distributed cryptocurrency, with nearly 79 million wallets holding the token as of July 2023, according to a study by report published by blockchain analytics company Chainalysis. The king of crypto coins, Bitcoin [BTC]was owned by just over 50 million unique holders.
Source: Chain Analysis
A more widespread distribution of a particular asset indicates holders’ sentiment towards its usefulness or the expectation of future price increases. The explosive growth of decentralized finance (DeFi) over the past three years, most of which has been built on top of the Ethereum blockchain, has been instrumental in driving ETH adoption.
The significantly smaller wallet count of stablecoin USD Coin [USDC] and the exchange token FTT reflected the crises that have engulfed the two tokens over the past year. While FTT demand stagnated after the collapse of parent company FTX, USDC struggled with its exposure to the US banking crisis.
That said, wider distribution alone is not enough to protect an asset from price volatility risk. If a disproportionately larger share of the supply is in the hands of a few powerful owners, this could lead to market manipulation and an increased likelihood of price volatility. Therefore, the degree of decentralization of ownership becomes a crucial factor.
According to the report, Bitcoin emerged as the most decentralized asset, with nearly 0.009% of all wallets storing 50% of the supply. Ethereum, on the other hand, was a bit top-heavy with only about 131 entities, or 0.0002% of all wallets, holding half of all tokens.
Source: Chain Analysis
Perhaps the biggest shock was that of the FTT, with just one wallet accounting for 50% of the supply. Chain analysis noted,
“Regardless of the concerns surrounding FTX as a company and the issues that led to its collapse, perhaps that level of supply concentration should have raised alarms among investors assessing the FTT token.”
Ethereum outperforms other assets in trading activity
Holding a token is one aspect of adoption. But the real test lies in how actively it gets used to facilitating transactions. The monthly number of active wallets is useful when making these assessments.
Like the large number of wallets, Ethereum was also the most liquid crypto, with about 4.8 million wallets active as of July 2023. Bitcoin came in a distant second with 1.9 million wallets actively trading the world’s largest crypto assets.
Source: Chain Analysis
It was clear that Bitcoin trading activity has slowed down since the crypto winter of 2022. The unprecedented HODLing mentality shown in 2023 has also rendered many wallets inactive.
In contrast, the DeFi summer of 2020 and the bull market of 2021 made ETH a popular commodity. The token was widely used to pay gas fees on the billions of platforms built on the network.
Similarly, USDC’s growth trajectory highlighted its usefulness as a settlement tool on decentralized exchanges (DEXs).
Sentiment around Bitcoin is changing
The above diagram was also helpful in understanding how Bitcoin is still primarily used as a transactional token. While Ethereum’s smart contracts revolution has helped push its boundaries far and wide.
This was further illustrated when looking at the market composition of various assets. The lion’s share of ETH supply was closed with DeFi protocols. Bitcoin, on the other hand, had none for obvious reasons.
Source: Chain Analysis
Moreover, the supply of Bitcoin on centralized exchanges has never gone beyond 20% of the total supply, while ETH has consistently remained above 30%.
Read Bitcoin’s [BTC] Price Forecast 2023-24
These insights lent credence to the previous observations about Bitcoin trading activity. Another notable development worth noting was the sentiment around Bitcoin.
Lately, the call for King Coin as a safe haven, or inflation hedge, has increased significantly. Naturally, people would rather save it for long-term profit than quick profit. It should therefore come as no surprise if the supply of Bitcoin on the exchanges falls further in the near future.