Bitcoin holds lead in whale transactions: Chainalysis

The bitcoin blockchain continues to dominate all the rest for transactions among whale investors — that is, those with the deepest pockets, according to a new report from blockchain surveillance firm Chainalysis.

Why it matters: It’s hard to really know exactly who is moving money on blockchains, by design. However, the more extremely large transactions start to take place, the more likely it is that the largest and most conservative investors in the world are taking the asset class seriously.

• And it stands to reason that the blockchain with the most large transactions is the one those large investors are taking the most seriously.

Driving the news: In a preview of its Web3 report, Chainalysis shows that bitcoin holds the lead on a day-to-day basis for the largest share of its transactions that are worth more than $1 million, which Chainalysis characterizes as “institutional.”

• Of note: There are lots of people and informal organizations in crypto that can make million dollar transaction without ties to what anyone might think of as "institutions" or formal organizations of any kind.

Situational awareness: Bitcoin doesn’t completely dominate in whale transactions any longer. For much of 2021, ethereum pulled ahead in large transactions, but bitcoin regained the lead late last summer and has held it again ever since.

• In other words, ethereum is becoming competitive as an asset for those with the deepest pockets.

Ethereum’s shift toward large transactions can also be partly explained by the expensiveness of using the Ethereum network.

• Transactions cost money on every blockchain, but smart contract blockchains, such as ethereum, charge different amounts for different kinds of transactions.
• Lots of transactions on ethereum go well beyond an entry in a ledger, demanding that the blockchain make complex calculations. Such transactions cost considerably more.

What they found: “Gas fees are virtually always at least 20% or more of the actual transaction amount at values below $10, and frequently rise above 50% for transactions between $10 and $100,” the report notes. It isn’t until transactions surpass $500 in value that blockchain transactions start to become competitive than one made with a charge card.

Be smart: That said, blockchain transactions also are not proportional to the amount of value transacted. On bitcoin, a billion dollar transaction costs the same amount to send as a $20 transaction.

• Fees are determined by demand for the network, not the value of the trade.
• When lots of people want to use a blockchain, it gets expensive to send money. When traffic is light, it’s cheap.

Yes, but: In early 2020, Ethereum pulled ahead of bitcoin in users and user activity and remained number one. Ethereum also has, by far, the most software developers working on it, according to prior work by the investment firm, Electric Capital.

The bottom line: Bitcoin and Ethereum continue to be the dominant blockchains by any measure, with no decisive winner for the number three spot yet.