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.
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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. 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.
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.
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Some interpret these transfers bullishly: bitcoiners moving their exchange bitcoin into cold storage. Crypto analyst Willy Woo calls these hodlers “Rick Astleys,” since the UK 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 last 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 lumens, 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, and 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 Wwith 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%.
A 33-Year-Old Fueling Crypto Boom Is Worrying Thai Regulators
(Bloomberg) – Atichanan Pulges first became interested in cryptocurrencies a decade ago when he was an engineering student in Los Angeles. Mining Bitcoin was a way for the Bangkok native to learn about markets and pay his rent.
Now back in Thailand after a stint at Goldman Sachs Group Inc., Atichanan is a co-founder of the nation’s largest licensed cryptocurrency exchange. He’s also on the front lines of an intensifying debate over who should be allowed to buy digital assets in Southeast Asia’s second-largest economy.
Thailand’s Securities and Exchange Commission, alarmed by a sixfold surge in domestic crypto trading since November, said on April 1 that it would soon require traders to have experience, or take courses or pass an exam. The regulator didn’t finalize a date and opted not to ban local exchanges from accepting clients who didn’t meet minimum-income levels, which had been mulled. Digital-asset proponents including Atichanan argue that too many restrictions will merely drive Thais to unregulated platforms overseas.
“The regulator realizes any curbs can’t reverse the tide toward digital,” said Atichanan, 33, who co-founded Bitkub in 2018. He said the exchange accounts for about 90% of domestic crypto trading and serves 300,000 customers, figures that Bloomberg has been unable to independently verify.
While volumes on Thai crypto exchanges are still small relative to counterparts in countries like the U.S. and South Korea, they’ve been surging in recent months as digital assets including Bitcoin have jumped to all-time highs.
Total trading turnover on all local licensed crypto exchanges jumped to 124 billion baht ($3.96 billion) in February from 18 billion baht in November, according to data from the Thai SEC, which only date back to November. Bitkub’s daily turnover of 4.2 billion baht in February reflects an increase of nearly 40% from a month earlier, according to the company’s statistics. A 24-hour turnover figure on March 30 ranked it 124th among more than 300 exchanges worldwide tracked by CoinMarketCap.
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As in other markets that have experienced a spike in retail trading during the pandemic, crypto activity in Thailand has soared in large part thanks to demand from younger investors. The boom has also been marked by hiccups at local exchange operators, including Bitkub.
Both developments have attracted scrutiny from the Thai SEC. In January, the regulator asked Bitkub to submit a plan to address investor complaints about “problematic work systems” that have caused trading outages. A month later, the regulator said it was considering eligibility restrictions for clients of crypto exchanges that include a minimum income of more than 1 million baht. The SEC at its April 1 meeting decided not to impose the income requirement, opting for an education or knowledge program.
“Crypto participants, including platform operators and investors, are mostly young and passionate about new technology and decentralization,” Ruenvadee Suwanmongkol, the SEC’s secretary general, said in an interview. “They must realize any financial innovation also has the potential to cause collateral damage to the general public and financial system.”
The SEC abandoned its income requirement after gathering feedback from market participants. The borderless and decentralized nature of crypto trading makes such controls difficult to implement, said Poomsiri Dumrongvute, who teaches a financial technology course at Chulalongkorn University in Bangkok.
Bitkub has made a similar argument in its feedback to regulators, also noting that stricter curbs could hamper the development of local blockchain technology.
Despite the regulatory risk, Bitkub is gearing up for a major expansion. The company plans to double staff to 500 by year-end, introduce its own debit card and open a physical crypto trading outlet in Bangkok to lure new entrants and serve as a meeting place for existing ones, according to Atichanan. Over the longer term, Bitkub has ambitions to gain “unicorn” status, or a private valuation of more than $1 billion.
Atichanan said the exchange raised the equivalent of $11 million from investors in three rounds since its establishment, though he declined to comment on the company’s current valuation.
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