They are moving their BTC investment out of exchanges indicating that there are far fewer sellers
Bitcoin has had an amazing bull run recently — signified by the seven bullish candles in the weekly time frame. At the time of writing, the Crypto kingpin is hovering around the $18,600 mark and a whisker away from its all-time high reached back in Dec. 2017. The total market capitalization of all cryptocurrencies has surpassed half a trillion dollars (~ $527 billion) for the first time since February 2018. Persistent strength in BTC and bullish moves in Alt. coins are contributing to this enormous growth.
In a report discussing the performance of several investments post-vaccine news Jim Reid, Deutsche Bank’s research strategist, wrote that there’s been a “divergence between gold (-3.6%) and silver (-4.4%) on the one hand and bitcoin (+13.4%) on the other.” Other analysts also vouch for the fact that growing interest from institutional investors has given BTC a hedge status against market risks. Many investors are now preferring Bitcoin over Gold to hedge against inflation and dollar depreciation risk.
Pandemic driven lockdown in mid-March proved to be the turning point for Bitcoin in particular and digital assets in general. According to the Chainlysis Market Intel, there have been 19% more $1 million-plus bitcoin transfers out of exchanges while the price has been above $10k in 2020 compared to when the price has been above $10k in 2017 and 2018 (left chart above). This highlights the fact that institutional investors continue to buy BTC at a higher price than they did in the late 2017 bull market.
In addition to this, $1 million-plus transfers have been increasing throughout 2020, particularly from fiat-to-crypto exchanges since mid-March. Investors are continuously seeing Bitcoin as a safe haven asset from macroeconomic uncertainty resulting from the COVID-19 pandemic. While this dynamic might play out in the long-term for digital assets, even in the short-term Fear Of Missing Out (FOMO) is causing a positive feedback loop on the BTC prices.
Chainalysis data (right chart above) suggests bitcoin inflows to crypto exchanges is relatively low, with a seven day average of 77k bitcoin, below the 30, 90, and 180-day averages — in fact, bitcoin inflows to exchanges are currently half the level they were at the peak of the 2017 bull market. Although Inflows have increased above 100k bitcoin per day on the 17 and 18 November, the 7-day average trade intensity of 38% is still above the 180-day average and suggests that buyers outweigh the sellers.
Bitcoin has stolen the limelight recently with its massive price gains but other digital assets are beginning to catch on the fever as well. Bitcoin’s offshoot and the sixth largest crypto by market cap, Litecoin (LTC), has gained an impressive 34% over the past week alone. Although LTC does not have a strong use case as BTC, it is still gaining in price as crypto investors look for cheaper & undervalued digital assets as compared to Bitcoin.
The other and more important factor might the relative scarcity of LTC. According to Chainalysis data, 62% of Litecoin has been held for more than a year, compared to 57% of bitcoin — thus making it as illiquid as bitcoin. Also, as evident from the chart above, Litecoin inflows to exchanges, while increasing in recent days, are still lower than at previous high price levels.
Originally Published on Medium