Why We Should Be Paying Attention to Bitcoin’s Transfer Volume

Temper the Statistic

Let us first put our skeptics hat on, and temper this statistic with context. The daily transfer volume simply measures how much Bitcoin moved from one address to another. That means that transfers to yourself are included in this statistic. Whether that is a transfer between two wallets you own, or to an exchange where you intend on selling your bitcoin.

With this added context, we can modify the feeling of grandiosity that this statistic first leaves us with.

This stat doesn’t mean that all 15 trillion of the transfer volume is being used in an economic exchange of goods and services. It also doesn’t mean that it’s not being used for those purposes.

The truth is, we simply do not have enough data to determine the intention, or the purpose of these transfers of bitcoin. Additionally, it is an obvious conclusion that the transfer volume will rise as the price of bitcoin rises. As long as the price is rising, and the amount of transfers more or less stays the same, then the overall transfer volume will also rise.

We can therefore track this statistic over time, to see if there is a trend of more bitcoin being moved over time, despite the increase in price. Such a statistic may tell us more about whether or not bitcoin is being used as a medium of exchange, than simply analyzing the net transfer volume alone.

Bitcoin is a Medium of Exchange

Anyone who tells you that bitcoin is not a medium of exchange is likely not paying attention to the trends.

As I stated above, we need to look into the past, as well as other charts to really make the assertion that bitcoin is a medium of exchange.

More bitcoin definitely tends to move during bull markets, indicating that bitcoin is still more of a traded commodity, than something that is used as money. However, we can look at 3 charts from glassnode, to help us ground our assertions:

1. Total Transfer Volume Year to Date (2021) in BTC

This chart tells us that there is a weak correlation between the amount of bitcoin being moved, and the current USD price. Although, more bitcoin is moved during violent price movements such as February 2021, and May 2021. This is bitcoin exiting, and entering the exchanges respectively.

2. Total Transfer Volume Year to Date (2021) in USD

This chart reinforces that there is a weak correlation between the price of bitcoin, and how much of it is moving at any one time.

To add some perspective on numbers, the lowest trade volume amount this year was on June 5th, and was 27 billion dollars. The most was on Feb 9th at 160 billion dollars. These are astonishingly large numbers and they give us an indication into the sheer scale of how large bitcoin has grown to be.

3. Total Transfer Volume (Last Five Years) in USD

This chart is fascinating as it tracks the transfer volume over the past 5 years in USD.

In between the bull markets of 2017 and 2020, with the exception of July 2019, the volume was relatively stagnant. The volume during these periods of time were between 1 and 10 billion consistently.

We can attribute those large spikes on the graph to increased trading activity, but what about that 1 to 10 billion in between? Some of this traffic is bitcoin being used to trade goods and services, while another part of it is simply reduced, but still present trading volume.

A Medium of Exchange, at Least for Cryptocurrency

A large part of bitcoin, is that it is a medium of exchange for all cryptocurrencies. It is the primary currency that all other cryptocurrencies are typically bought and paid for with.

So as far as being a medium of exchange goes, at least in the digital realm, this holds true. In the rest of the world, people still prefer to use regular fiat currency for most of their daily transactions. Although the tides may be turning on this front with El Salvador and other countries beginning to take bitcoin more seriously.

The next multi-year bear market will certainly tell us much more about how bitcoin is used for day to day purchases of goods, during a period of less trading activity. We won’t have the added “noise” of bitcoin being transferred to and from exchanges. Instead, what we may see is a maturation of the lightning network, and a corresponding explosion of bitcoin being used for everyday payments. Only time will tell.

Transfer Volume Nearing US GDP

The United States GDP was $20 trillion in the year 2020. Bitcoin is set to surpass that number in terms of transfer volume in 2021.

What this actually means is that bitcoin is growing beyond the size and scale of any single country. Even if the majority of the transfer volume is related to trading, it still gives us a good indication into the direction of bitcoin in general. At its current size (2% of the population), we are seeing the kinds of activity and volumes discussed herein.

What sort of transfer volume will we see once the population begins to use it more broadly as money?

Bitcoin Becoming Money

In order for Bitcoin to become a money stable enough, and liquid enough for the world to use, it will have to grow beyond any milestone it has already reached.

Bitcoin must grow out of being the most heavily traded cryptocurrency, and into the most heavily traded currency. It has to be used for global trade between nations, and local trade between merchants and customers.

I’m not sure how long this initial “monetization” event will take, but this is what is taking place before our eyes. The monetization is hypothesized to be a “gradually, then suddenly” type of event. That is, one day we’ll wake up and realize that 20% of the world is using bitcoin for day to day transactions.

Full scale adoption will then be a short exponential jump away, at which point bitcoin will leak into the hands of individuals at all corners of the globe.