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: New Jersey Man Admits to Running Unlicensed Bitcoin Exchange
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.
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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: How Will the Coinbase IPO Affect Bitcoin’s Price?
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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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%.
Crypto market cap soars to record $2 trln, bitcoin at $1.1 trln
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NEW YORK — The cryptocurrency market capitalization hit an all-time peak of $2 trillion on Monday, according to data and market trackers CoinGecko and Blockfolio, as gains over the last several months attracted demand from both institutional and retail investors.
At midday, the crypto market cap was at $2.02 trillion.
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The surge in crypto market cap was led by bitcoin, which hit its own milestone by holding the $1 trillion market cap for one whole week. Bitcoin was last up 1% at $58,820. Since hitting a lifetime peak of more than $61,000, but has since traded in a relatively narrow range.
Analysts said as long as bitcoin stays above $53,000, it will be able to maintain its $1 trillion market cap.
Ethereum, the second largest cryptocurrency in terms of market cap, was up 1.5% at $2,107, with a market cap of $244 billion. It hit a record high of $2,144.99 last Friday.
“While two trillion dollars in market cap is a sizable amount of value stored in the blockchain format, it is still less than 1% of the value that can be stored in that format, which means there is still much further to go in terms of both market cap and overall smart contract adoption,” said Sergey Nazarov, co-founder of Chainlink, a decentralized network that provides data to smart contracts on the blockchain.