Crypto Long & Short: Bitcoin Outflows Aren’t the Bullish Signal You Think They Are

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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: DeFi Hedge Fund Force DAO Attacked; FORCE Token Plunges

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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Related: The Future of Bitcoin and Crypto Is in Renegades and Malcontents

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.

A 33-Year-Old Fueling Crypto Boom Is Worrying Thai Regulators

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(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 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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Why Is WazirX Crypto Skyrocketing, Up 930% In A Week?

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The utility token of WazirX, which claims to be India’s largest cryptocurrency exchange, has risen 929.89% in a seven-day trailing period leading up to press time.

What Happened: WazirX (WRX) was trading 195.16% higher at $4.76 at press time on Sunday night.

WazirX CEO Nischal Shetty acknowledged in a tweet Sunday that the WRX token had crossed $1 billion in market cap. He simply tweeted #IndiaWantsCrypto, a hashtag meant to indicate support for cryptocurrencies in India where the government is said to be considering a ban.

A delay in the introduction of a bill in the Indian parliament that would have banned cryptocurrencies has also lifted the spirits of investors in that country, according to local Indian media.

Investors said that the delay is a signal that the government is further studying the subject rather than issuing an outright ban, reported The Quint, an Indian news portal.

As of press time, WRX had a market cap of $1.14 billion, as per CoinmarketCap data, meagre compared to the apex cryptocurrency Bitcoin (BTC), which enjoys a market cap of $1.09 trillion.

BTC traded 1.47% higher at $58,257.32 at press time.

What Else: On Sunday night, WazirX crashed. According to Shetty, the crash was due to “internal limits” set by some of the exchange’s infrastructure providers. Shetty disclosed that system loads were “crazy” on Twitter.

Shetty issued an update in the early morning hours (India time) and said trading was on but warned of “intermittent errors.”

We’re awake and we’re monitoring the systems. There might be intermittent errors, team is working on solving those. https://t.co/qPrHIwL7O0 — Nischal (WazirX) (@NischalShetty) April 4, 2021

Significantly, the crash of WazirX came on the same day when its token hit an all-time high of $5.87.

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