The number of Bitcoin (BTC) addresses containing 1 Bitcoin hit a four-month low on September 20, according to glassnode‘s data. But it is too early to say that this is a bearish indicator for the largest cryptocurrency.
What caused the fall?
The decline in small Bitcoin addresses has coincided with sharp growth in the decentralized finance (DeFi) market.
The total value locked into the Defi protocols at Ethereum has risen from $4.091 billion to $ 9.77 billion since August 1. The large increase in value held in defi has led to a decline in demand for tokens such as Wrapped Bitcoin (wBTC).
Users use DeFi protocols to generate returns from large cryptocurrency assets. Since it is not possible to transfer bitcoin to Ethereum, users first convert their BTC to WBTC and then use wBTC on Defi platforms.
Using wBTC to take advantage of DeFi platforms and returns allows Bitcoin owners to achieve two things: first, Bitcoin users can use DeFi protocols without selling BTC. Second, Bitcoin investors are not deprived of the potential increases of BTC price movements.
As demand for WBTC increased, the number of small Bitcoin addresses containing 1 Bitcoin probably decreased. As Defi’s popularity grew, users may have converted their Bitcoins to WBTC.
Jack Purdy, a researcher at Messari, said in testimony in July that WBTC’s dominance would continue in the short to medium term.:
“For these reasons, wBTC will continue to dominate in the short and medium-term. But when these assets attract the attention of regulators, there is a danger of government intervention. “
However, the decline in small addresses and the rise of WBTC does not mean a downward trend for Bitcoin.
Eventually, when users decide to withdraw their WBTC from the Defi protocols, it will convert them back to Bitcoin. If users moved their Bitcoins to WBTC, that doesn’t mean users sold BTC.
Instead, this means there is a short-term trend that could last until the end of the ongoing DeFi cycle.
wBTC nears $ 1 billion
According to skew data dated September 18, WBTC’s value is approaching $ 1 billion. According to CoinMarketCap, 76,047 wBTC is currently in circulation. This means more users are transferring their Bitcoins to Ethereum-based DeFi platforms for return.
Since WBTC is worth exactly 1 Bitcoin, it does not create a trend that can reduce the value of Bitcoin in the long run. Since users are reluctant to miss out on possible Bitcoin increases, it can even be said to be a positive indicator.
While DeFi platforms, which allow users to earn returns using wBTC, are profitable, there is a great risk and Great Return. WBTC’s growing market capitalization means most users don’t want to risk missing a potential Bitcoin rally.
