Where are all BTCs?

[johnwhitestar]

I know the question has been already discussed before, and to be honest I think I've read some explanation somewhere, but still I do not understand and if you have enough patience to explain feel free to participate in this thread.

My question is very simple: where are all the BTCs?
We can see that 10.870.000 BTCs has been mined so far and only, let say, the 5th part of them is being traded on the exchangers each month.
So where are all the other BTCs? Are they stored somewhere? Are we able to see where they are stored? Are they being traded outside of the official exchangers, if so where?

And the most important question that worry me much: what if the holders of all those BTC decide to move them to exchangers and to sell them? Will we easily reach the bottom in such case?

[Stephen Gornick]

My question is very simple: where are all the BTCs?

If you were to look at Mt. Gox's cold wallet(s), I would bet that you would be very surprised to learn how many could be found there.

Having a BitcoinFund hedge fund acquiring and holding more will help cause more to be transferred out of Mt. Gox perhaps, but that's still about the same -- large amounts of funds ending up under the physical control of a small number of entities.

So where are all the other BTCs? Are they stored somewhere?

Bitcoins held by those running the Bitcoin-Qt/bitcoind client are stored locally.  Bitcoins held by those storing them to paper wallets are local as well.

The reason you aren't seeing them traded is because they were acquiring for speculative purposes.  They aren't being traded because the speculators aren't selling.   (Well some are, certainly, but many more are not.)

And the most important question that worry me much: what if the holders of all this BTC decide to move them to exchangers and to sell them?

Well, the market at current levels would probably be decimated if a half million coins were to be dumped over a period of just a couple days.  The carnage would be even worse if let's say a couple million coins of supply were to overrun the demand.

Will we easily reach the bottom in that case?

It all depends on why the selling is occurring.  For instance, let's say a rogue programmer somehow slipped in a keylogger+file transfer utility into the most recent Microsoft critical update.  On April 1st, 2013 at 00:00:00 UTC it is set to execute, and will upload to the cloud every wallet.dat and keystroke log it was able to capture.  By 1 am the attacker has started dumping large amounts of coins and the exchange rate drops.  Then users start reporting that their wallets are showing transactions they didn't make.  By 2am it is apparent there is a widespread exploit and possibly millions of coins are now in the hands of thieves, and the selloff accelerates.   

Possible?  You betcha!

Likely?  We'll probably first see something like this from some lesser known third-party software, but since wallet.dat + keystroke log = "free money" (in the eyes of the attacker), it wouldn't surprise me if it were to occur.

Everyone holding bitcoins are vulnerable to the loss in confidence and the resulting selloff following such an event.  Whether that means the exchange rate drops to $2 or $12 or $28 nobody knows.  But absent some armageddon like that, any sharp drop will probably be met with heaving buying from those looking to enter a position (or buy back) by picking up some "cheap" coins.

[johnwhitestar]

The reason you aren't seeing them traded is because they were acquiring for speculative purposes.  They aren't being traded because the speculators aren't selling.   (Well some are, certainly, but many more are not.)

If they are holding BTCs for speculative purposes, does it mean that they are going to sell them once their goals will be reached, from your point of view?

Being to so much BTCs hold, can we say that it's an indicator of BTC economy being still young and not enough developed?

[Stephen Gornick]

If they are holding BTCs for speculative purposes, does it mean that they are going to sell them once their goals will be reached, from your point of view?

Yes, but those goals are not static.  Here's an anecdote.  A person who had bought near the 2011 high and had held all the way down to $2 was saying that as soon as break-even was reached that person would sell half the coins held.  At last check this person still has not sold. 

But yes, many people have adopted a buy and hold investment approach, some performing dollar cost averaging, and others just sitting on what they already have acquired.   It may be where they are just watching to see where bitcoin goes -- with no burning desire to cash out anytime soon, especially since cashing out may cause a taxable event (i.e., recognition of capital gains).

Being to so much BTCs hold, can we say that it's an indicator of BTC economy being still young and not enough developed?

Those are two really independent statements.

Currently there are 10.8 million BTC issues.   Let's say 10 million are held by investors who do not plan to touch them for five years.   That doesn't mean the BTC economy can't be developed.  The 0.8 million BTC circulating would just be seeing a high velocity (and a might higher valuation) since those two would change as the level of economic activity changes.

The risk to this though is that if the investors holding the 10 million BTCs all start to think that selling a good chunk of coins would be a good idea, that's when you get volatility and selloffs and that is what is harmful to a nascent currency.

[Raize]

In addition to what Stephen has said, the same could be said of a number of physical commodities as well. For example, Gold has seen all-time highs, but has retracted from them a bit. That said, the demand for gold is definitely smaller than the supply. If everyone who owned gold were to suddenly sell it on Monday, the price would be decimated. That said, there isn't much incentive for those that bought to sell at under what they purchased it for, even if the price drops that far. A fall from $1600 to $800 would probably trigger those who were sitting on the sidelines anticipating a drop to purchase at those levels.

The same could be said for the sell side. While there are tons of gold, not every owner of gold has a sell order in, even if there are a few tons waiting to be sold at $3000 or $5000 per ounce. However, someone who owns a few ounces of gold might see the price rising to first $3000, then $5000, and decide that they should sell. They would then move their goods to market so that they can be sold.

If you think of it this way, there are probably millions of Bitcoins waiting to be sold at $50 or $100 in the same manner, even if they do not yet reside in an exchange.

[johnwhitestar]

Thank you guys for the interesting explanations.