First Mover Americas: Bitcoin’s Exchange Balance Hits 3.5-Year Low

The latest moves in crypto markets in context for April 18, 2022.Read MoreFeedzy

Good morning, and welcome to First Mover, our daily newsletter putting the latest moves in crypto markets in context. Sign up here to get it in your inbox each weekday morning.

Here’s what’s happening this morning:

Market Moves: Bitcoin dips below $39,000 as bearish macroeconomic factors continue to overshadow bullish blockchain metrics.

Featured Story: Is bitcoin an aspirational store of value?

And check out the CoinDesk TV show “First Mover,” hosted by Christine Lee, Emily Parker and Lawrence Lewitinn at 9 a.m. U.S. Eastern time.

Morgen Rochard, managing member, Origin Wealth Advisers LLC

Austin Reid, chief of staff, FalconX

Jake Rapaport, head of digital asset index research, Nasdaq

By Omkar Godbole

With each passing week, bitcoin’s blockchain metrics diverge from bearish macroeconomic factors, offering hope to long-term holders.

The number of coins held on exchanges declined by over 20,000 BTC to 2,449,785 BTC last week, hitting the lowest since August 2018, data provided by blockchain analytics firm Glassnode show. The tally has decreased by 138,266 or 5% this year, indicating HODLing – a crypto slang for buy and hold – remains a preferred strategy in the market.

Investors typically take direct custody of coins when intending to hold them for a long term. A continued decline in BTC available on exchanges means fewer coins available for sale and the potential for an extended rally.

“Underneath the surface, there is a heavy phase of accumulation on-chain,” Blockware Solutions’ market intelligence newsletter published on Friday said. “Exchange outflows have reached a rate that has only ever occurred three times before in bitcoin’s history: following March 2020, December 2020 (a lot of which was likely GBTC), and September 2021.”

Bitcoin’s exchange balance. (CoinDesk)

Other metrics also paint a bullish picture. For instance, the percentage of bitcoin inactive for at least a year recently reached a record high of 63.7%. At the same time, whales accumulated 1,000 BTC last week, registering the first weekly uptick since January, per Blockware Solutions.

Even so, bitcoin fell to a one-month low of $38,577 during the Asian hours, taking the year-to-date decline to over 15%. The selling pressure likely stemmed from tax issues and macro traders liquidating holdings, tracking a continued melt-up in government bond yields and Fed tightening scare.

Clearly, macro factors are in the driver’s seat. “For now, we’ll continue to listen to every sound bite from Fed officials as they look to combat inflation via scare tactics,” Arca’s CIO Jeff Dorman noted last week. “But one year from now, it’s doubtful that the high correlation between rates, equities, and digital assets will be anything besides another footnoted relationship that didn’t hold.”

Bitcoin at key support

Bitcoin’s three-day chart, where each candle represents price action for three days, shows the cryptocurrency is flirting with the 200-period simple moving average (SMA). It’s the critical level to watch out for, given bears have repeatedly failed to establish a foothold under the technical line since late January.

Should they succeed this time, more chart-driven selling may be seen. A breakdown would expose support at $30,000. The current three-day candle is set to close at 23:59 UTC on Monday.

Bitcoin’s 3-day chart. (TradingView)

By George Kaloudis

In times of high inflation and economic uncertainty, investors go risk-off, and there’s a “flight to quality.” In practice, when sentiment flips risk-off, investors sell their risky tech stocks and buy something like bonds, or if they really fear inflation, something sound like gold.

And you know what’s better than gold? Gold 2.0 of course. Bitcoin (or the Reserve Asset 3.0). We have high inflation, and so everyone piled into bitcoin and its price shot up, right? Not quite…

What gives? This is sound money, right? This is a store of value with a known current supply and emissions schedule, right? Isn’t bitcoin provably scarce? I thought the emissions schedule of bitcoin didn’t change as demand for the asset increased?

That’s all true: Bitcoin has a known monetary policy with a hard cap and a predetermined minting schedule; anyone with a full node (a basic computer with some software) can tell you how many bitcoins are in circulation and if the price of bitcoin went to $1 million tomorrow, the coins wouldn’t be mined any faster than they are today.

But there’s one thing missing. Narrative.

On a 60-day lookback, bitcoin’s price has been somewhat correlated (> 0.20 correlation coefficient) with the technology stocks in the Nasdaq for about 50% of trading days in 2022.

I think the reason for that is quite simple. While bitcoin’s hard money properties make it a risk-off asset for its supporters, investors see a risk-on asset because of its volatility and technology-like asymmetric price upside. When investors want to cut risk, they sell stocks alongside bitcoin. So bitcoin isn’t a risk-off or risk-on asset yet. Instead, I think it’s better to call it “risk everything.”

As such, it is probably more accurate to refer to bitcoin as an aspirational store of value.

Today’s newsletter was edited by Omkar Godbole and produced by Parikshit Mishra and Stephen Alpher.


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