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FDT Explorer: Half a billion dollars in Ethereum moved in ten hours: where it came from, where it went, and why

Ozier Zarouq Khan
Ozier Zarouq Khan 6 August 2021

On August 1 this year, about $500,000,000 worth of ETH was moved from wallets to exchanges, or from exchanges to wallets, in just a few hours and a small number of transactions.

There’s no reason to believe that all the transactions were made by the same entity, but all were large and they all moved at the same time. Why?

The transactions

Ethereum has been heating up recently, with a sustained increase in transaction numbers starting around October last year; and its price is historically high too. Eth is hot property, and it’s normal for large sums to move during a single day’s trading.

But on August 1, something usual happened even by the standards of the general-accepted “number two” digital asset. In a few transactions, each worth around 50,000 ETH, and over a period of just ten hours, $500,000,000 worth of Ethereum was moved.

The largest transaction simply involved the transfer of one wallet’s enter 55,277 ETH (about $129 million) balance to another wallet. The sending wallet in this transaction had received just over 50,000 ETH in its first transaction 26 days ago, again the entire balance of the sending wallet.

Staff at the Daily Hodl traced the transactions back nearly a year, finding that the controlling entity for this transaction appears to be moving ETH around by emptying wallets and relocating the contents to nre addresses.

Meanwhile, multiple other very large transactions took place at nearly the same time:

Institutions and funds are likely the whales here

We don’t know for sure whose ETH is under discussion, because the blockchain is both transparent and private. So we know what happened in some detail but we’re in the dark as to who did it. But the tight timeframe and similar sums involved suggest a single entity or a group acting as one. That would seem to suggest institutional investors, corporate treasuries or a fund rather than a large group of smaller investors, who would struggle to coordinate their activities to that extent without leaving traces. In other words, these are the waves whales make.

Although the sum involved here is high even by the standards of whale transactions, this isn’t entirely new. In May, $1.5 billion in ETH moved off Binance in just ten minutes, to speculation that the cause was financial institutions “buying the dip” when ETH was down nearly $2,000 on its all-time high price.

In both cases, the causes of the transactions were opaque, and large sums moved quickly. That strongly suggests major investors who seek to gain crypto exposure — without making waves outside the blockchain.

High value with a low profile

There have been several high-profile business leaders whose interest in digital assets has moved markets as well as generating fresh interest in their main products. The best-known example is Tesla CEO Elon Musk, whose tweets, first embracing and then backing away from BTC and ETH, were credited with moving the price of BTC up or down by 4%-5%.

However, the inflow of money into the “big two” digital assets over the last few months isn’t solely from Musk, and it’s unlikely that it’s from retail investors alone; they have made a contribution to the trend, but there is something else happening here too.

Businesses, financial institutions, and funds are moving on digital assets, and they’re doing it quietly. They’re making coordinated plays on ETH and elsewhere, but they don’t want it to be big news. Why not?

In large part, because when big investors make big trades, they move the market with them. Suppose for a moment that you owned half of all the gold in the world. If you decided to sell, the more you sold, the less it would be worth, since your sale would dilute its scarcity, and thus drive down its price. If you dumped it all on the market at once you could cause a market crash.

That’s one effect. The other is that smaller investors tend to follow bigger ones. When whales move, minnows move with them. But larger investors, just like smaller ones, want to respond to the market advantageously; having it respond to them makes it more difficult. One way around this is to make transactions so rapidly that there’s no time for the market to respond, especially by raising the price when actors want to buy or lowering it when they want to sell.

Take the example of July 19 this year. That day, 100,000 ETH — about $181,944,560 at the time — was transferred from the Gemini exchange to an unknown wallet; shortly thereafter, Ethereum’s price rose by 6%. Six percent of $181 million is a significant gain, but the price increase might have been hampered if smaller investors thought larger, perhaps more knowledgeable players were selling rather than buying.

NFTs driving pressure on Ethereum

Part of the increasing activity on Ethereum is down to the network’s popularity as a platform for NFTs. Outspoken investor and longtime digital assets advocate Gary Vaynerchuck bought a CryptoPunk NFT for $3.7 million the same day as the $500 million was moved, though in this case the purchase is traceable to”Gary.veefriends.eth”, a domain shortcut to an Ethereum wallet controlled by Vaynerchuck. He wasn’t alone in his decision — the average price for CryptoPunk NFTs is at its highest ever:

Average Price of NFT Sales

Volume is surging too, meaning increasing pressure on the Ethereum blockchain processing the purchases.

Fees and staking

There’s also pressure on ETH holders in the form of the network itself gearing up for the staking transition to PoS-based Eth2. Since exchanges began announcing waitlists for Ethereum staking, over $15 billion in ETH has been staked. When investors put up ETH to stake like this, it’s locked up and can’t be traded or spent until the network merge, which is expected to be in 2022. So it represents a temporary drain on the supply of ETH, exercising deflationary pressure on the asset.

There’s another downward pressure on ETH supply too. EIP-1559, part of the London hard fork, is set to happen on August 5th, after a slight delay. It’s intended to make transaction fees more predictable; a major stumbling block for DeFi and other granular transactions on Ethereum currently is high, unpredictable transaction fees, though EIP-1559 won’t necessarily make transaction fees lower.

EIP-1559 will change the way Ethereum fees are calculated and handled, with one major change being the separation of transaction fees into a base fee to be determined algorithmically, and a tip to miners to accelerate transactions. The base fee won’t be passed on to miners, but will be “burnt” — permanently destroyed. Thus, EIP-1559 opens a “hole” in the “bucket” of Ethereum, establishing a permanent, deflationary trickle of currency destruction.

The whales are here to stay

At the same time, ETH ownership has become increasingly polarized. Whales are absorbing more of the supply of the currency. The top ten wallets on Ethereum now own just over 20% of the asset’s total supply, and between them they bought about 2.5% of all ETH in existence in the 40 days to July 14. Major institutional investors and funds, that can afford to buy the dip and hold out during price decreases, are absorbing large tranches of ETH, and when they do sell, it’s usually at a profit.

The large shifts from exchanges to wallets and wallets to exchanges that we’ve seen recently are likely to simply be larger investors doing what they’ve always done: acting quietly on market intelligence while trying not to wobble the market every time they take a step. What they signal, more than anything, is the deep interlinking of institutional investment looking for reliable yields and a secure store of value with the digital asset space, something we’ve long looked forward to.

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