Many are wondering what the cause of Bitcoin’s renewed energy is. I figured I would present a few Bitcoin-related charts

Put simply, a Bitcoin ETF would be an enormous catalyst for the asset. The existence of a Bitcoin ETF would enable entire categories of market participants to get efficient and convenient access to the asset, who simply weren’t able to get exposure to it before.

Of course, one address on-chain does not necessarily correspond to one person. Large exchanges custody Bitcoin in omnibus accounts on behalf of many users, and regular users can control many addresses, so there’s error in both directions. But as long as the relationship between humans and the number of addresses on-chain that represent them is somewhat consistent, this is a useful directional metric to assess user growth.

The open interest in futures refers to the total value of outstanding contracts that have yet to be settled. The CME Bitcoin Futures product is notable because it’s a liquid Bitcoin product at the world’s largest derivatives exchange, which investors of all stripes have access to. Unlike a lot of Bitcoin exchanges, the CME is plugged into established clearing infrastructure — effectively the plumbing capable of moving trillions of dollars around.

Indeed, when Renaissance Technologies, one of the world’s most lucrative hedge funds, announced that they would include Bitcoin in their universe of tradeable assets, their instrument of choice was the CME cash-settled Bitcoin futures product. The CME is a natural choice for many large and highly-regulated allocators, because they don’t want to deal with the operational complexities that involve taking custody of Bitcoin, they may already actively trade on the exchange, and their regulators are most likely already comfortable with it. No need to evaluate the risk of a brand new platform.

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infantMortality. This is the chance of a child dying in their first year of life. Our World in Data estimates an average infant mortality rate of ~25% over the past two millennia. I’ll use that because it can give us a good historical simulation.

Realized cap sits at $129B today, well above its $90B peak in early 2018. What this tells us is that Bitcoin is substantially more liquid at these levels, with investors less eager to sell. In late 2017/early 2018, the unit price was higher (the Coin Metrics reference rate lists the highest 00:00 UTC daily close at $19,640 on Dec. 16, 2017), but less of the supply had changed hands at those rarefied levels. This also explains why the price collapsed so quickly from there. It simply couldn’t be sustained, as investors in the aggregate had a cost basis far below that threshold, and were eager to take profit. The 2017 bull run was more of a melt-up, driven by ICOs, press coverage, and retail investor excitement. This bull run is more of a sustainable slow burn.

This takes into account the liquid supply of Bitcoin in a practical sense. Realized cap ignores the market value of Bitcoins that haven’t moved since 2009 (when Bitcoin did not have a market value). You can think of it as roughly measuring the aggregate cost basis of all the current Bitcoin holders.

This product originally launched on December 17, 2017, the precise top of the last bull run for Bitcoin. The chart doesn’t include data prior to mid 2019, but if you look at historical coverage of the CME’s Bitcoin product, you can see that open interest is indeed at ATHs (well, it’s a smidge below it’s ATH set in August 2020).

Realized Capitalization is an alternative to Market Capitalization, designed to take into account the reality of when Bitcoins changed hands. Instead of pricing every outstanding unit of Bitcoin at the last market price, it prices every unit of Bitcoin according to when they last moved on-chain. This is possible to ascertain because Bitcoin’s ledger is transparent, and we can account for every single coin.

Just like derivatives first came into existence for farmers to hedge their exposure to crops and lock in a specific price for their harvest (and get liquidity on their future crops so they could buy seeds and fertilizer today), so too are options useful for the producers of Bitcoin — the miners. Miners can tell, roughly speaking, how many Bitcoins they will mine based on their equipment, under reasonable assumptions about hashrate. If they want to get an ‘advance’ on the coins they expect to mine, they can sell calls. This means they promise to deliver coins at a certain price on a certain date — but they get paid for that promise today. And with that cash advance, they can go ahead and finance their operation more efficiently.

Open interest in an options contract adds up the value of the outstanding, un-exercised options. (Options traders will grumble at this methodology, because it can be skewed by options trading at silly strike prices like $32k.) While in absolute terms, the numbers are still fairly low, the incipient but maturing options market tells us a thing or two about Bitcoin today.

Today, the picture looks very different. The supply has significantly churned and a lot of early investors have cashed out, giving way to new blood. These investors, who bought their coins in the last couple years, are presumably not as eager to lock in a profit at $20k as someone who had been holding Bitcoin since it was $1. Thus, a higher realized cap is an indication of greater maturity and capacity for patience in the current investor set.

The other important thing to note is that the CME is a highly-regulated U.S. domiciled exchange under the aegis of the Commodity Futures Trading Commission. Unlike certain offshore Bitcoin exchanges, it has a robust trade surveillance framework and is considered to be extremely reliable. This does not make the venue immune to market manipulation, but it does mean that manipulators can be caught. This matters for Bitcoin, because a lack of surveilled and orderly markets to trade the asset is the chief reason the Securities and Investment Commission rejected a Bitcoin ETF in the past. As certain offshore exchanges face enforcement actions and are marginalized, the growth of onshore, orderly markets that regulators are very comfortable with, means that the prospects for a Bitcoin ETF are much sunnier.

This chart shows the number of addresses on the Bitcoin ledger owning $10 or more worth of the asset. It’s well above its late 2017 level. This shows the supply of Bitcoin getting more and more dispersed, especially into lot sizes that are consistent with retail investors. The chart looks much the same — at all-time highs— for other thresholds, whether $1, $100, or $1,000. At all of these levels, there are simply more addresses on the ledger holding Bitcoin.

The industry has been holding its breath waiting for an ETF for the past half decade. I vividly remember being disappointed at the SEC denial of the Winklevoss $COIN Bitcoin ETF in March 2017. We’ve come a long way since then; market structure is such that new ETF applications would be extremely credible, with the increasing prominence of onshore markets like the CME being of paramount importance.