Research Summary
The report analyzes the divergence between declining active Bitcoin addresses and increasing transaction counts, attributing it to the advent of the Runes protocol. It also discusses the significant holdings of major entities, the impact of the Cash-and-Carry trade structure on ETF inflow demand, and the role of Coinbase in the market pricing process.
Key Takeaways
Runes Protocol’s Impact on Bitcoin Activity
- Address Activity vs Transaction Count: Despite a decline in active Bitcoin addresses, the number of transactions processed by the network is near all-time highs. This divergence is attributed to the Runes protocol, which allows for significant address reuse.
- Runes Protocol’s Popularity: Since its launch in April 2024, the Runes protocol has seen high demand, with daily transactions ranging between 600k and 800k. It now accounts for 57.2% of daily transactions, indicating a shift in collector speculation from Inscriptions to Runes.
Major Entities’ Bitcoin Holdings
- Significant Holdings: Major entities, including US Spot ETFs, Mt. Gox Trustee, US Government, all exchanges, and miners, hold approximately 4.23M BTC, accounting for 27% of the adjusted circulating supply.
- Coinbase’s Role: Coinbase holds a significant fraction of both aggregate exchange balances and US Spot ETF balances, making it a key player in the market pricing process.
Cash-and-Carry Trade Structure and ETF Demand
- Neutral Impact on Market Prices: The Cash-and-Carry trade structure, involving a long spot position in US Spot ETF products and shorting futures via the CME Group exchange, has largely neutralized the buy-side inflows into ETFs, resulting in a relatively neutral impact on market prices.
- Hedge Funds’ Position: Hedge funds are increasingly adopting a net short position for Bitcoin, suggesting that they are a significant source of ETF inflow demand.
Actionable Insights
- Monitor the Runes Protocol: Given its significant impact on Bitcoin transaction counts, it would be beneficial to keep a close eye on the Runes protocol’s performance and popularity.
- Assess the Role of Major Entities: Understanding the holdings and influence of major entities like Coinbase can provide valuable insights into market dynamics and pricing processes.
- Consider the Impact of Cash-and-Carry Trade Structure: The Cash-and-Carry trade structure’s impact on ETF demand and market prices should be taken into account when analyzing Bitcoin’s market performance.
