Analyst: If the US government starts confiscating Bitcoin, retail traders will face dire straits

On April 29, Willy Woo, an on-chain analyst, voiced concerns regarding the potential impact of a recession on retail Bitcoin investors, particularly if the United States government initiates coin confiscation.

Fate of Bitcoin Holders Amid Government Actions

Woo draws parallels to historical events, notably the Great Depression of 1930, where the U.S. government seized gold from the public to bolster national reserves. He questions whether a similar scenario could unfold with Bitcoin, posing a greater risk to retail investors.

The likelihood of government success hinges on Bitcoin storage methods. Woo highlights that a significant 87% of Bitcoin is held in self-custody wallets, granting individuals control over their private keys and transaction signing.

Conversely, spot Bitcoin ETF issuers like Fidelity hold approximately 1% of Bitcoin, rapidly acquiring it to meet investor demand. Meanwhile, 12% is held on exchanges, accessible for trading into altcoins, fiat, or stablecoins.

According to Lookonchain data, by April 26, all spot Bitcoin ETF users held over 834,000 BTC less than three months after launching.

Spot BTC ETF flows tracker | Source: Lookonchain via X

Economic Indicators Pointing to Recession

Woo notes that while most BTC is held in non-custodial wallets, this is primarily by whales. Retailers, on the other hand, often utilize centralized exchanges, making them more vulnerable during economic turmoil.

However, the distinction between whales and retailers is somewhat ambiguous. Bitinfocharts data suggests that over 65% of BTC is held by those with less than 0.1 BTC, indicating a retail majority.

Bitcoin rich list | Source: Bitinfocharts

Rising inflation and declining real GDP in the United States have raised concerns about a looming recession. Attention is now focused on the Federal Reserve and Jerome Powell's upcoming interest rate decisions.