November 19, 2020

Hiding in Plain Sight: Bitcoin Demand on the Rise - November 2020 Update

We Observe Bitcoin Demand On The Rise

This is our third quarterly installment in the “Hiding in Plain Sight” series, where we monitor several demand drivers of Bitcoin. 

When we started the series in the second quarter of 2020, we stated:

  • We observe that Bitcoin demand is on the rise
  • Net demand (purchases less emissions) will turn net positive between Q3 2020 and Q1 2021 following the reduction in new supply post “halving” and using some simple proxies for consumer demand and long term investment

Fast forward to Q4 2020:

  • We observe that net demand turned positive between July and August of 2020
  • Given the growth in previously identified sources coupled with the emergence of new sources of demand, we expect this trend (net demand being increasingly positive) will only accelerate

In previous posts, we focused on two onramps that we believe are more geared towards and better suited for long term ownership vs. short term speculation:

  1. Grayscale Bitcoin Trust (GBTC)
  2. Square Cash App - consumer app enabling in-app BTC purchases

We focused on these two given the general size, transparency, accessibility, and long term oriented nature of each (a more formal debate on this is provided in the Critiques & Counterpoints section at the conclusion). The growth from both of these sources remained unabated in Q3 and more importantly the consumer onramps and sources of demand continue to broaden. Three noteworthy developments in the last quarter include: PayPal’s formal entrance into the crypto market, the emerging trend of corporates acquiring Bitcoin as part of their overall treasury management strategy, and Bitcoin being locked into decentralized finance (DeFi) applications.



Exchange Traded Products

Grayscale Bitcoin Trust

  • Size: >$9B NAV and holds, 515,166BTC[1] (>3.5% of liquid BTC supply[2]) 
  • Total shares outstanding increased by ~17% in Q3
  • Despite the increase in size, it consistently trades with a premium in excess of 10% (currently ~19.5%), indicative of consumer demand


  • Their Bitcoin trackers surpassed $1B in AUM during Q3 2020
  • This represents ~50bps of the total Bitcoin free float supply[3]

Consumer Apps

Square Cash App

  • Started offering in-app BTC purchases in Q2 `18
  • Averaged 59.59% q/q growth since inception
  • In-app BTC transactions were $858M in Q2 ‘20, representing 187% q/q growth, which represents ~87.35% of total Q2 Bitcoin block rewards[4]
  • In-app purchases of Bitcoin in Q3 `20 were $1.59B, representing 86% q/q growth, which represents ~233.14% of total Bitcoin block rewards[5]


  • Another noteworthy development on the consumer adoption side is PayPal’s formal entrance into the market.
  • PayPal has 361M active accounts per their Q3 2020 earnings call
  • Currently, only 10% of their users have access to crypto purchases. Their waitlist is reportedly 2x-3x what they anticipated and they’ve already increased the weekly purchase limit from $10k to $15k 
  • It will initially roll out its cryptocurrency service to U.S. users first, followed by "Select international markets" — in addition to its Venmo platform in H1 of 2021[6]

Swan Bitcoin

  • This is a consumer centric platform that enables users to set up recurring buys (and one time purchases) in a cost effective manner, with streamlined delivery to a qualified custodian or self-custody 
  • While this is currently small (in absolute size) vs. GBTC, Square, et al. - it highlights an important consumer trend
  • Since their launch in March, they’ve seen phenomenal growth. They now have thousands of users, have recurring Bitcoin purchases well into eight figures (in USD terms), with the average member purchasing over $700 in Bitcoin per month. They also have several users who have committed to purchasing over $100k in Bitcoin per year and seeing an increase in large one time purchases, including some in excess of $1M.

Corporate Treasury

During our Q2 investor letter, we highlighted a statement by MicroStrategy (MSTR) indicating they were evaluating Bitcoin as an alternative investment for their cash and stated, “if the start of a larger trend, this could be meaningful for institutional flows”. Fast forward 3 months, and this is already starting to materialize. MicroStrategy has now invested $425M, the majority of their excess cash, into Bitcoin (they currently have >$250M unrealized gains on this position). Square made public shortly afterwards that they invested $50M, ~1% of their treasury, into Bitcoin. 

MicroStrategy and Square own a combined 42,959 BTC, ~30bps of the total free float supply. MicroStrategy is an outlier in our opinion in terms of the size of their commitment, and Square is clearly already very dedicated to Bitcoin (active contributors to Bitcoin core, integration of Bitcoin within the Square Cash App, etc.) so it is not surprising they made this move. 

What is most important about MicroStrategy and Square is that they’ve laid the groundwork for others to follow suit. Michal Saylor, the CEO of MicroStrategy, has appeared on countless podcasts putting forth the investment case for Bitcoin (he also owns 17,722 BTC personally). Square went as far to publish a whitepaper discussing critical elements of purchasing Bitcoin (custody, trading/acquisition, insurance).

The next milestone will be when another large US corporate that is not already directly involved in the digital currency market makes a similar move on the premise of low/negative yields, reduced purchasing power, etc. or a sovereign announces the inclusion of Bitcoin in their currency reserve basket. As square crypto tweeted, “The question isn’t which company will add bitcoin to their treasury next, but which government”.

Decentralized Finance

Another development that has accelerated in the last quarter is the growth of “wrapped BTC”, which is essentially an ERC20 token that is backed 1-1 by Bitcon held in custody by the issuer (wBTC, hBTC) or in a noncustodial setup (tBTC). The primary driver for wrapped BTC is that it effectively enables interoperability of BTC within the Ethereum ecosystem, and more specifically within decentralized finance (DeFI). Bitcoin can be used as collateral on DeFi platforms for collateralized borrowing and to earn yield making it a more “productive” asset. This trend has continued to accelerate rapidly and currently exceeds 150k BTC[7] and is approaching $2.3B in market value in aggregate (chart below is just for wBTC, but illustrative of the growth).

Demand Aggregation

Aggregating the demand across these various sources, we see that ~8.3% of Bitcoin on a free-float adjusted basis has been purchased via and/or resides across these different cohorts. 

Each bucket is not apples to apples. With respect to GBTC and other ETPs, this is a transfer of Bitcoin from one wrapper to another that is more conducive to investment (accessible via traditional brokerage and retirement accounts). With respect to Bitcoin that backs ERC-20 tokens and resides within the Ethereum “DeFi” ecosystem - this too is a transfer of Bitcoin from one wrapper to another, but while within DeFi it is generally locked as collateral or to generate yield (thus not available supply to be sold). The Square Cash figure reported here represents the aggregate gross transaction volume purchased via the app inception to date. As discussed in previous installments, we do not know how much of this was purchased to hold although you can make the case that the cash-app is not designed for “trading”. Our insights suggest that a minimum of ⅓ of this has been purchased to hold (which would translate to 1% of all Bitcoin on a float adjusted basis). At this stage, we expect corporate treasury holdings to be more or less static and effectively act as a reduction in aggregate supply. For publicly traded companies, these balances will be observable on a quarterly basis in the event there is additional investment or divestment.


Looking at just GBTC and Square Cash, and assuming that only ½ of GBTC Ownership and ⅓ of Square Cash purchases were for “buy and hold”, “net demand” turned definitively positive in Q3 2020. (See installment 1 and installment 2 of Hiding in Plain Site for more detailed discussion of assumptions).

In addition to the unabated growth of demand from Grayscale and Square Cash, we’re seeing an increase in consumer accessibility with the arrival of PayPal and new sources of demand from Corporate Treasuries and the decentralized finance ecosystem. We believe this will only accelerate the current trend of demand exceeding Bitcoin emissions (positive net demand). Unlike 2017, there is real institutional demand supported by a more sophisticated and thoughtful macro narrative. 


  1. Grayscale Bitcoin Trust, references underlying NAV (i.e excludes the premium)
  2. Liquid supply calculated by OnChainFX on Nov 18th 2020
  4. Square Cash Q2 2020 Report, 100 Acre Ventures. Quantity of Bitcoin transactions via Square Cash is estimated by taking the reported net revenue from Bitcoin purchases (gross revenue less profit) divided by the average daily price of Bitcoin during the quarter
  5. Square Cash Q3 2020 Report

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