- Cryptocurrency spent the week in the spotlight, as part of US Senate debate on the infrastructure bill and as $612 million of crypto was stolen from Poly Network, then mostly returned.
- Exclusive on-chain analysis of Dogecoin shows it is currently being adopted by new investors at a level not seen since the late-2017 bull market, with new investors increasing their share of supply from 9% in July 2020 to 25% in August 2021.
- However, Doge ownership is very concentrated, with 106 billion Doge, 82% of supply, held by 535 entities that hold more than 10 million Doge each, or 0.01% of entities.
Cryptocurrency prices increased this week. The bitcoin price climbed from $42.8k at the close of Friday 6 August to $44.5k at the close of Thursday 12 August, with a high of $46.8k on Wednesday 11 August. The Ethereum price went back above $3k, going from $2.9k to $3k over the week, with a high of $3.3k.
It’s been a busy week for crypto. EIP-1559 was implemented on Ethereum and has burnt a relatively small amount of Ether. Crypto was a major topic of debate in the US Senate’s infrastructure bill. Coinbase announced strong Q2 results. $612 million of crypto was stolen from Poly Network, then mostly returned. Penguins are the new Punks.
But in this Market Intel Report, I’m here to focus on the things that really matter in crypto: Dogecoin. Yes, Elon Musk’s favourite memecoin. Why? Doge is one of the most traded cryptocurrencies in 2021 so far, and the price increased from 0.6 of a cent at the start of the year to a peak of 69 cents on 7 May, to 27 cents currently. This is a price rise so significant that a Goldman Sachs executive quit after making millions on his Doge. Who says that crypto is not disrupting traditional finance! But also, earlier this week Chainalysis announced coverage of Doge. This means we can look beyond the hype to see how Doge is actually used on the blockchain.
Let’s start with some history. Doge was created in December 2013. As the first chart in the report shows, the price started low, at tenths of a cent, and declined through 2014 and largely plateaued in 2015 to hundredths of a cent. Price increased in early 2016, then largely plateaued until rising again in Q1 and Q2 of 2017. It fell back in Q3 but then climbed to 1 cent in early January 2018 as the late-2017 bull market peaked. The price fell back to tenths of a cent with the 2018 crypto-winter and remained at that level until a TikTok trend in July 2020. Then, in January 2021, Elon Musk and Reddit turned their attention to Doge and the price rocketed to the moon.
This price history is reflected in the nature of on-chain holdings. The second chart in the report shows the share of the total Doge supply held by different types of holders. Much of Doge was liquid in its first year, as 74% of the current supply was mined in 2014. Once the initial distribution settled, the liquid supply and new investors, those holding for less than 6 months, held 30% of supply in 2015. New investors entered as price rose in early 2016, acquiring 13% of supply. The liquid supply and new investors increased through 2017, until together they accounted for 70% of supply in early 2018. Liquidity declined from then and new investors held on to their Doge, becoming longer term investors.
New investors returned again in July 2020 on the back of the TikTok trend, increasing their holdings from 9% to 17% of supply by October 2020. New investors acquired even more from January 2021, as Elon Musk and Reddit raised the profile and the price of Doge. Investors acquiring Doge in the last six months now hold 25% of the supply, while investors who have held for more than two years decreased their share of supply from 30% in July 2020 to 20% today.
For those of you who like definitions: the liquid supply is Doge held by entities that send at least 25% of the Doge they receive (on average they send two thirds). Investors send less than 25% of the Doge they receive (in 2021 on average they have sent 9% but previously just 4%). Investors are further split by the average amount of time they have held Doge.
Who are these Doge holders? As the third chart in the report shows, currently there are 4 million on-chain holders of Doge. But most of the supply is held by a small number of wealthy entities. 106 billion Doge, 82% of supply, is held by 535 entities that hold more than 10 million Doge each, or 0.01% of entities. As I’ll explore below, this is likely a mixture of businesses, such as exchanges that store Doge on behalf of millions of traders, and a few, now-wealthy, early investors.
While a small number of wealthy entities own most of the supply, 2.1 million of the 4 million entities hold less than 100 Doge each, with half of these 2.1 million entities holding Doge for more than two years. These low-balance entities are not necessarily individuals, but are likely to be scattered wallets, belonging to a smaller number of individuals.
The fourth chart in the report gives more detail on the 535 entities that hold more than 10 million Doge each, and collectively hold 106 billion Doge. 37 billion of the 106 billion Doge is held by just 31 investors that have held their Doge for between 6 months and 2 years – that is over 1 billion Doge each on average.
Some of these may be businesses, such as exchanges. Chainalysis has only just started supporting Doge and our mapping of businesses will improve over time. But if they are businesses, then they are businesses that have very few on-chain withdrawals. This is not typical of exchanges in other cryptocurrencies, where assets typically flow in and out as market makers arbitrage between exchanges and self-custody to manage risk. However, Doge is different. Major Doge exchanges, such as Robinhood, do not currently allow withdrawals, and retail customers in general do not frequently make on-chain withdrawals from exchanges. So either the vast majority of Doge is locked in exchanges and traded by retail, or it is concentrated in the hands of a small number of now-wealthy individuals.
Even if most Doge activity is retail on exchanges rather than on the blockchain, there are still on-chain signals. As the fifth chart in the report shows, Doge has had an average of 32k on-chain Daily Active Users (DAUs) in 2021, but this has moved with the price. There is an R value of 0.7 between the percentage change in DAUs and the percentage change in the Doge price in 2021 so far. Correlation is not causation: spikes in active users and price coincide with Doge-related social media, from Reddit activity to Elon Musk tweets. An increase in on-chain activity around these events indicates the strength of the response, as transfers on-chain take more effort than making a trade.
Again, for those of you who like definitions: an on-chain Daily Active User is an entity that sends or receives Doge that day. The number of Daily Active Users is much lower than the number of holders. This is typical across cryptocurrencies, where the vast majority of people simply hold while a much smaller minority actively transfer assets on the blockchain.
What does all this tell us about Doge? I’ve said before that “Dogecoin’s price rise demonstrates that cryptocurrencies are experiments in branding for financial assets, plugged directly into the craziness and creativity of the internet. While this may seem counter to traditional financial brand values, it may be that traditional financial brand values are out of step with consumers”.
Now that I’ve analysed the on-chain data, I can also say that Doge is an asset like any other, with changes in ownership and liquidity in response to changes in demand and price. Of course, demand and price for Doge is largely driven by social media. But we can judge the strength of the response to this from actual activity on the blockchain. The response we see is that Doge is currently being adopted by new investors at a level not seen since the late-2017 bull market. However, while new investors are large in numbers, likely 1 to 2 million on-chain, Doge ownership is highly concentrated in a very small number of entities that are either retail exchanges or early investors.
Dogecoin is just one of many cryptocurrencies that can be analysed in Chainalysis Market Intel, which has been designed so that all our metrics are comparable across assets. If you’d like to learn more, please email me at firstname.lastname@example.org.
Philip Gradwell, Chief Economist