According to data from the analyst company Glassnode, the number of BTC addresses storing 1 BTC has dropped to its lowest level in four months. However, it is too early to consider this a bearish signal for the oldest cryptocurrency.
What caused the sharp drop in small BTC addresses?
The noticeable decline in the number of small BTC addresses coincides with the rapid expansion of the decentralized finance (DeFi) market. As of August 1, the total value blocked in DeFi protocols on Ethereum increased from $ 4.091 billion to $ 9.77 billion. The massive capital growth in DeFi caused the demand for tokens like Wrapped Bitcoin (wBTC) to skyrocket.
Users use DeFi protocols primarily to earn money from their cryptocurrencies. Since it is not possible to transfer Bitcoin to the Ethereum network, users convert BTC to wBTC and then use wBTC on DeFi platforms.
Using wBTC allows BTC holders to achieve two things. First, BTC users can still use DeFi protocols without selling their cryptocurrency. Second, investors do not lose their price increase potential.
The number of small addresses storing 1 BTC has probably decreased as the demand for wBTC increased. Users were able to convert BTC to wBTC due to DeFi becoming more and more popular.
In July, Jack Purdy of Messari, stated that the dominance of wBTC is likely to continue in the short to medium term.
“For these reasons, wBTC is ready to continue its dominance in the short to medium term. There is still a threat of government intervention when these assets grow large enough to attract the regulator’s attention. “
However, the decline in the number of small addresses and the rise in wBTC do not necessarily indicate a bearish trend for Bitcoin.
Eventually, when users decide to withdraw their wBTC from DeFi protocols, they will convert them back to BTC. If the addresses have transferred BTC to wBTC on the Ethereum network, it does not mean that users have sold their Bitcoins.
wBTC hits $ 1 billion
September 18, Skew he gave, that the wBTC market cap is approaching USD 1 billion faster and faster. According to CoinMarketCap data, there are currently 76,047 wBTC in circulation. These numbers suggest that more and more users are moving their BTC to DeFi platforms.