Crypto Long & Short: Bitcoin Outflows Aren’t the Bullish Signal You Think They Are
Conventional wisdom suggests that when big amounts of bitcoin exit exchanges, the hodlers are socking away coins in their cold-storage hoards, presumably forever. The reality is more complicated than that, and bitcoin outflows in 2021 have a lot more to do with another important digital asset: stablecoins.
But first, how we got here: The crypto industry still isn’t happy about FinCEN’s proposal to require crypto exchanges to collect data on both sides of any outflow transactions. Now, crypto advocates have a civil liberties group taking their side in comments on the proposal. That caused me to wonder, just how much money are we talking about?
The chart above shows the estimated notional value of bitcoin flowing out of exchange wallets, summed by month. The real number is probably larger. Notably, Coinbase goes to greater lengths than most exchanges to disguise its bitcoin addresses and therefore the largest U.S.-accessible exchange by volume is almost certainly undercounted here.
Related: Bitcoin News Roundup for April 5, 2021
However, $60 billion a month is nothing to sneeze at. It’s no wonder regulators are paying attention to these flows.
You’re reading Crypto Long & Short, a newsletter that looks closely at the forces driving cryptocurrency markets. Authored by CoinDesk’s head of research, Noelle Acheson, it goes out every Sunday and offers a recap of the week – with insights and analysis – from a professional investor’s point of view. Noelle is on vacation, so Galen Moore, our director of data and indexes, authored this week’s column. You can subscribe here.
Much of the increase in outflows is due to bitcoin’s extraordinary Q1 price run. It was a record first quarter for the orange coin. Historically, for whatever reason, the first quarter has been a weak one, with negative returns in five of the past seven years, according to CoinDesk Research. In 2021, bitcoin rose 103% on the quarter.
Story continues
That’s not the whole story, however. Last week saw another record: a single-day high-water mark in bitcoin-denominated outflows, with 1,365 BTC transferred off exchanges in a 24-hour period.
Related: Abkhazia Bans Bitcoin Mining Shortly After Legalizing It
Some interpret these transfers bullishly: bitcoiners moving their exchange bitcoin into cold storage. Crypto analyst Willy Woo calls these hodlers “Rick Astleys” because the U.K. pop singer’s chart-topping 1987 single, “Never Gonna Give You Up,” aptly describes their feelings about bitcoin. But as I said on CoinDesk TV’s “All About Bitcoin” show on Friday, it’s possible that they are Stevie Wonders. Meaning, they’re “Part-Time Lover(s).”
Here’s what I mean by that: One of the underlying market dynamics of the past three years has been the rise of stablecoins. Tether (USDT), in particular, has replaced bitcoin as the dominant quote currency of crypto altcoin trading. What that means is, when I want to use crypto to buy crypto on an exchange, I’m much more likely to be doing that in tether or, to a limited extent, USD coin (USDC), Circle’s dollar-pegged stablecoin.
What we’re looking at here is quote currency volumes, the volume of markets priced in bitcoin and the top two stablecoins for the top four altcoins: ether, cardano, chainlink and stellar, on three exchanges included in TradeBlock’s bitcoin XBX index, plus Binance. So, this is a sample of the market, but a significant one. (TradeBlock is owned and operated by CoinDesk, and its XBX index is drawn from the most liquid exchanges that are accessible to U.S. investors. I’m using Binance as a reliable proxy for the rest of the world.)
As the chart shows, by the beginning of 2020 a flippening had occurred, with stablecoins already replacing bitcoin as the dominant crypto quote currency. Since then, tether and USDC have continued to eat up a growing share of quote currency volume, replacing bitcoin more and more. Bitcoin’s quote volume is now down to 12% versus the two largest stablecoins. And so, increasing bitcoin outflows reflect that trend as much as anything else: as volume moves from markets quoted in bitcoin to markets quoted in tether, exchange wallet balances reflect that move.
In other words, when it comes to the popular narrative of bitcoin outflows as a bullish signal of hodler activity, I think that’s a story dreamed up by the Doobie Brothers: it’s “What a Fool Believes.” I tend to lean more toward Tina Turner on this metric, wondering, “What’s Love Got to Do With It“? My advice to investors would be to stay like Daryl Hall & John Oates, and keep their “Private Eyes” watching this market closely.
Having traded in a band between $50,000 and $60,000 for more than a month, bitcoin seems likelier every day to make a breakout. Be cautious of narratives based on tea leaves in the blockchain data.
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Mason Versluis, aka “Crypto Mason” Analyzes Institutional Investment Impact on Cryptocurrencies
April 5, 2021 4 min read
This story originally appeared on ValueWalk
Cryptocurrency was crowned as the top-performing asset class for 2020-2021- seeing a nearly 800% ROI.
Ethereum- the world’s second most popular cryptocurrency after Bitcoin, recently reached over $2,000 and hit an all-time high
Q4 2020 hedge fund letters, conferences and more
In light of the prolific amount of institutional investment that the Cryptocurrency Market has recently seen- further explored below, the popular Cryptocurrency Analyst and Social Media Influencer Mason Versluis has given his take on the plethora of crucial considerations that need to be taken into account before novicely entering into the dynamic cryptocurrency market.
A Proliferated Market? A Quick Overview
The Cryptocurrency Market has seen an almost unprecedented amount of growth recently, with some of the world’s most popular cryptocurrencies- including Ethereum and Bitcoin, experiencing significant spikes in their Market Price.
Mason Versluis has shed light on the topic, explaining why these aforementioned spikes are to be expected from a financial investor’s point of view, as well as detailing why they could have been logically predicted. The industry has holistically been the recipient of a prolific amount of institutional investment from a plethora of financial colossals- including electric car manufacturer Tesla, and this has undoubtedly served as an indication of the potential longevity of cryptocurrencies for a significant number of people. For example, it may have suggested that, perhaps, this recent aforementioned adaptation of crypto may be indicative of a market-shift in the way in which cryptocurrencies are utilized in the future, and consequently may suggest the proliferated market price is not a result of a ‘market bubble’.
Furthermore, the COVID-19 pandemic’s effect on the Cryptocurrency Market needs to be considered. Versluis has commented on the fact that in light of the significant chaos of the exacerbated COVID-19 economy, overt institutional investment- as well as repeated federal monetary stimuluses, have undoubtedly contributed to the aforementioned effect and ‘have inadvertently painted the cryptocurrency industry as a safety-net in today’s unpredictable and unprecedented financial market’- Mason Versluis.
This makes sense, especially when examining Bitcoin. The eminent cryptocurrency has both: a) recently spiked to over $ USD 59,000, and b) recently been elected as the best ‘performing asset of 2020-2021’ by The Economic Times, retaining an ROI of nearly 800%.
A Further Analysis: Bitcoin, Tesla, Morgan Stanley and others:
Tesla’s recent policy enabling persons to utilize Bitcoin so as to purchase their globally-recognised electric cars has undoubtedly further proliferated these rising cryptocurrencies value according to Mason Versluis. He points out that Tesla is not the only institutional investors driving investor sentiment and that Morgan Stanley and others have entered the race too.
The absence of any public plans to dispose of the company’s cryptocurrency any time soon, as well as the adaptation of similar policies by financial colossal Visa- who will now allow payments to be settled via the use of cryptocurrencies as well, has once again suggested that the there is an increasingly evergrowing acceptance of virtual currencies by the world’s most prominent and globally-recognised financial figures, and has therefore undoubtedly heavily contributed towards the proliferation of the industry.
‘Another point that should be considered, is Bitcoin’s finite supply. Similarly to Ethereum- but contrary to a prolific number of other cryptocurrencies currently on the market, the renowned cryptocurrency can only have a maximum of 21 million Bitcoin available, and consequently its value cannot be jeopardized in the future by government-induced changes in the market such as quantitative easing policies or inflationary spikes.’- says Mason Versluis.
An Investor and Influencer with a unique philosophy:
Crypto Mason is known for his well-received talks on financial investment, spirituality enshrined in his slogan “Health, Wealth and Self.”
Having amassed a prolific audience of over 100 000 people on social media, an active chat that allows him to liaise with over 3,000 persons on a daily basis, and having been featured on a popular media outlet for Crypto-spirituality, Mason Versluis undoubtedly has come a long way since the start of his prosperous career.
His unique analysis in relation to the importance of maintaining a robust Mental Health in a financial investment setting has enabled thousands of individuals around the world to pursue a holistically balanced lifestyle that enables them to secure financial success without the commonly associated opportunity cost of a deteriorated health.
An Investor Who Gives Back:
Versluis distinctive philosophy has been recently highlighted as a result of his philanthropic tendencies- regularly organising giveaways that can exceed $ USD 1,000 in the crypto analyst’s favorite cryptocurrency “HBAR” as a way of ‘giving back’ to his loyal community.
The Crypto Daily – Movers and Shakers – April 5th, 2021
A bearish start to the day saw Bitcoin fall to an early morning intraday low $56,500.0 before making a move.
Steering clear of the first major support level at $55,981.0, Bitcoin rallied to a mid-afternoon intraday high $58,480.0.
Falling short of the first major resistance level at $58,950.0, Bitcoin slipped back to sub-$58,000 levels.
Finding late support, however, Bitcoin move back through to $58,200 levels to end the day in the green.
The near-term bullish trend remained intact supported by the recovery to $58,000 levels. For the bears, Bitcoin would need to slide through the 62% FIB of $26,041 to form a near-term bearish trend.
The Rest of the Pack
Across the rest of the majors, it was a mixed day on Sunday.
Crypto.com Coin fell by 1.95% to buck the trend on the day.
It was a bullish day for the rest of the majors, however.
Binance Coin and Ripple’s XRP rallied by 8.41% and by 9.69% respectively to lead the pack.
Chainlink (+4.96%), Ethereum (+3.35%), Litecoin (+3.58%), and Polkadot (+4.94%) also found strong support.
Bitcoin Cash SV (+2.14%), Cardano’s ADA (+1.71%) trailed the front runners, however.
It was also a mixed week for the crypto majors.
Cardano’s ADA slipped by 0.65% to buck the trend.
It was a bullish week for the rest of the pack, however.
Binance Coin (+29.93%) and Polkadot (+31.58%) led the way, with Ethereum rallying by 23.09%.
Bitcoin Cash SV (+14.66%), Chainlink (+15.29%), and Ripple’s XRP (+16.11%) also made solid gains.
Crypto.com Coin (+4.97%) trailed the front runners, however.
In the week, the crypto total market fell to a Monday low $1,671bn before rising to a Saturday high $1,932bn. At the time of writing, the total market cap stood at $1,872bn.
Bitcoin’s dominance rose to a Wednesday high 61.34% before falling to a Sunday low 57.67%. At the time of writing, Bitcoin’s dominance stood at 58.01%.