https://blog.nomics.com/flippening/btc-philip-gradwell-chainalysis/ Slides from Flippening Podcast Episode #79 with Philip Gradwell of Chainalysis This deck covers: • Philip’s career before Chainalysis • His role as Chief Economist at Chainalysis • How a relatively small group of traders influence Bitcoin’s price • The percentage of Bitcoin that could be lost forever • How most Bitcoin (80%) is HODLed long-term • What is a VASP or virtual asset service provider? • How Chainalysis ties addresses to particular exchanges • How law enforcement uses blockchain analytics • How illicit activity accounts for just 1% of BTC transaction volume • Bitcoin’s concentration among the top 14 crypto exchanges • Analyzing blockchains that follow different accounting models • The role of fiat in the crypto ecosystem • How Tether became the dominant quote currency in crypto trading • Using on-chain data to verify reported trading volumes • Making blockchain analytics intelligible for the next wave of crypto adopters

1. A big look at bitcoin
Philip Gradwell, Chief Economist
For the Flippening podcast

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● Introduction
● How bitcoin is used
● The scale and nature of illicit activity
● Understanding exchanges
● Flows of bitcoin by region
● Key takeaways and questions
Agenda

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Introduction
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250+ customers across 40 countries
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Law Enforcement
& Regulators
Cryptocurrency Businesses Financial Institutions

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Chainalysis maps addresses to services
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What you see on the blockchain What you see in Chainalysis
Coinify Bitstamp
Services can have thousands to
tens of millions of addresses

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Context: the bitcoin price entered a ‘winter’ in 2018
until Q2 2019, since then it averaged ~$8,700
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How bitcoin is used

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Three questions to understand how bitcoin is used
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How is it
held?
How much
flows and
why?
How
many
people are
involved?

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62% of mined bitcoin is held for investment, 20%
is likely lost, 18% supplies trading activity
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Lost
3.7m BTC
Trading
3.4m BTC
Investment
11.4m BTC
To be mined
2.4m BTC

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54% of bitcoin has currently been held for more
than a year
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82% of bitcoin is currently held by entities that
retain more than ¾ of the bitcoin they receive
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60% of available bitcoin is currently held by
Virtual Asset Service Providers (VASPs)

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Of the 40% of available bitcoin not held by VASPs,
87% has passed through VASPs
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$14.4 billion of bitcoin has been transferred per
week on average in 2020
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40% of bitcoin flows between exchanges, with 43%
between unknowns often in transit to exchanges
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Holding on-chain
Millions
Holding on exchange websites
Tens of millions
Holding via ETPs/Trusts
Unknown but maybe tens of thousands
Owners of bitcoin are harder to count due to
pseudo-anonymous on-chain addresses and
omnibus accounts on exchanges
Weekly active users
How many bitcoin users are there?
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Active on-chain
Max 310,000 per week (2020 average)
Active on-chain on exchanges
Max 340,000 per week (2020 average)
Active on exchange websites
~5 million per week (SimilarWeb unique visitors)
Active users transfer or trade bitcoin in a week,
so are easier to count, but on-chain estimates
are upper bounds
Owners

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Summary
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⅗ of bitcoin is held for investment by tens of millions of people, mostly for years, almost always
sourced from VASPs
The vast majority of people hold the majority of investment bitcoin on VASPs, but a large minority of
investment bitcoin are held independently on-chain by low millions of people
Ownership is concentrated and the largest independent holders are likely a mix of early adopters,
high net worth individuals, and trading companies
⅕ of bitcoin is regularly moved, mostly between exchanges, creating a flow of ~$14 billion per week.
Low hundreds of thousands of people actively transfer bitcoin each week
⅕ of bitcoin is likely lost

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Illicit activity
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Illicit
cryptocurrency
activity reached
an all time high
in 2019
1.1% of transaction volume
> 180% increase 2018 - 2019
> $11.5 billion sent & received

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Scams aside, illicit and merchant services are
similarly sized
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Increase due to
bitcoin sent to
Ponzi schemes
e.g. PlusToken
(but not OneCoin!)

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Exchanges increasingly off-ramp illicit activity
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Summary
22
Illicit activity reached an all time high in 2019, largely due to scams
Illicit activity is ~1% of value transferred on-chain
Scams aside, illicit activity is similar in size to merchant services
Illicit funds are increasingly laundered through a small number of exchanges, often via rouge OTC
brokers

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Exchanges
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Which
exchanges
are most
important?
Are
participants
retail or
professional?
How does
trading and
on-chain
activity
interact?
Three questions to understand exchanges
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Four exchanges received 40% of bitcoin received
by exchanges in 2020, the next 10 received 36%
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42% of exchange flows are between, and 32% is
to/from, crypto-to-fiat exchanges
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895k bitcoin has moved from crypto-to-crypto
exchanges to crypto-to-fiat exchanges since 2018
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Retail participation is high, with ¾ million transfers
of less than $1k received by exchanges per week
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Professionals control liquidity, with 85% of USD
value into exchanges from transfers of $10k+
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Some exchanges trade a bitcoin received on-chain
many more times than others
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Changes in trade intensity can identify when an
exchange business model changes
31
Poloniex
acquired

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Summary
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Exchanges are the main origin and destination of bitcoin flows
Bitcoin flows to exchanges are concentrated, with the top four exchanges receiving 40%, and the top
14 receiving 75%, since 2018
Crypto-to-fiat exchanges are the core of the industry. ¾ of bitcoin flows between exchanges are
between, to, or from crypto-to-fiat exchanges since 2018. Since mid-2018 there has been a large net
flow of bitcoin from crypto-to-crypto to crypto-to-fiat exchanges, totalling 895k bitcoin to date
The vast majority of the retail market remains on exchanges’ websites, rarely interacting with the
blockchain. Yet, there is significant retail on-chain interaction with exchanges, with ¾ million
transfers of less than $1k received by exchanges per week. However, professionals control liquidity,
moving 85% of the USD value into exchanges in transfers of more than $10k
The ratio between trading volumes and on-chain inflows to exchanges gives insight into otherwise
inscrutable business models

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Flows of bitcoin by region
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58% of bitcoin flows occur within regions, mostly
within Eastern Asia and North America
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42% of bitcoin flows are between regions, mostly
between Eastern Asia and North America
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Western Europe is a conduit for flows, receiving
from N America and sending to RoW and E Asia
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Summary
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Geographic analysis of bitcoin flows is possible with advanced analytics. It focuses on understanding
the location of the majority of a service’s customers, based on multiple data points from timezone
analysis, to web traffic, and so on
The majority of flows occur within regions, suggesting strong local markets, particularly in Eastern
Asia and North America
However flows between regions are a large minority of flows, suggesting bitcoin markets are
interconnected
Western Europe has larger flows to other regions than it has within the region. Since 2018 it is a net
receiver from North America and a net sender to Eastern Asia and RoW

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Key takeaways
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Summary
⅗ of bitcoin is held for investment by tens of millions of people; the majority is held on VASPs, and
ownership is concentrated
Trading is the next largest use case, involving ⅕ of bitcoin and responsible for most of the on-chain
flow of ~$14 billion per week
Crypto-to-fiat exchanges are the core of the industry, with a retail market of millions of people, but
liquidity is controlled by professionals
Illicit activity is ~1% of value transferred on-chain, scams are the most lucrative
Bitcoin activity is mainly regional, mainly within Eastern Asia and North America, but inter-regional
flows are a large minority of flows
Flows between Western Europe and other regions are larger than flows within Western Europe

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Thank you!
Questions?
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