Small Bitcoin addresses plunge to 4-month low, but is this bearish?


Bitcoin addresses holding 1 BTC plunged to a 4-month low, but it is premature to suggest it is a bearish sign.

According to Glassnode ‘s info, the Bitcoin (BTC) addresses carrying 1 BTC plummeted to a four-month low on Sep. 20. But to say that it is a bearish sign for the top cryptocurrency is premature.

What caused the number of small Bitcoin addresses to sharply drop?

The noticeable decrease in small Bitcoin addresses correlates with the decentralized finance (DeFi) market’s explosive growth.

The total value locked on Ethereum in DeFi protocols has risen from $4.091 billion to $9.77 billion since Aug. 1. The vast capital increase in DeFi has triggered a spike in demand for tokens such as Wrapped Bitcoin (wBTC).

The total value locked in DeFi
The total value locked in DeFi. Source:

Users mainly use DeFi protocols for their cryptocurrency holdings to receive yields. Since Bitcoin can not be converted to Ethereum, users convert BTC to wBTC, and use wBTC on DeFi platforms afterward.

Using wBTC to obtain DeFi network visibility and yield enables two things to be accomplished by Bitcoin holders. First, without selling BTC, BTC users can still use DeFi protocols. Second, Bitcoin investors are not missing the possible upside from price shifts by BTC.

As demand for wBTC increased, the number of small Bitcoin addresses holding 1 BTC possibly fell. Users may have converted their BTC to wBTC, as DeFi’s popularity grew.

In July, a researcher at Messari, Jack Purdy, said wBTC’s dominance will likely continue over the short to medium term. He said:

“For these reasons, wBTC is poised to continue its dominance in the short to medium term. That being said, there’s still the looming threat of government intervention once these assets grow large enough to catch the regulator’s attention.”

But the fall in small addresses and the wBTC upsurge doesn’t necessarily hint at a bearish bitcoin pattern.

When users decide to take their wBTC out of the DeFi protocols, they will finally migrate them back to BTC. If the addresses transferred BTC to the wBTC of Ethereum it does not mean that the users sold BTC.

Instead, it indicates it could be a short-term development which could continue until the end of the current DeFi period.

wBTC is accelerating to $1 billion

Skew announced on Sep. 18 that the valuation of wBTC is accelerating to $1 billion. According to CoinMarketCap numbers, currently, 76,047 wBTC are in circulation, indicating more users are moving BTC for yield to DeFi platforms based on Ethereum.

The wBTC market cap
The wBTC market cap. Source: Skew

As wBTC reflects the exact value of 1 BTC, over the longer term, it is not a bearish development for Bitcoin. In reality, since users are unwilling to lose out on the possible BTC upside, one might argue that it is a positive metric.

While DeFi platforms are profitable and allow users to gain yield using wBTC; there are high-risk and high-return pools. WBTC ‘s increasing market capitalization suggests that many consumers do not risk missing out on a possible rally for the BTC.


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