Cryptoverse: Bleeding bitcoin holds out for a hero

Representations of the Bitcoin cryptocurrency are seen in this illustration, August 10, 2022. REUTERS/Dado Ruvic/Illustration

Aug 30 (Reuters) – Who can save bitcoin?

The world’s largest cryptocurrency can’t seem to take a break. It finally appeared to regain strength this month, topping $25,000 for the first time since crashing in June, only to fall back towards $20,000.

A deflated end of August forced the market to grapple with the Big Bitcoin Question: Where will a real rally come from?

Right now, brave retail investors seem like the most likely source of relief, as institutional players shy away amid a macro maelstrom.

The amount of “illiquid bitcoin” in the market – held by wallets that rarely spend or sell – increased by 73,840 bitcoin over the past week, the largest weekly increase in more than two months, according to data from Chainalysis. . That equates to about $1.7 billion at recent prices.

Additionally, the amount of bitcoin held for more than a year has increased by an average of 54,300 over the past four weeks, the largest increase in about four months, Chainalysis said. Meanwhile, cryptocurrency exchanges have seen sharp outflows for three straight months as investors put their tokens in “cold storage” rather than selling, according to Arcane Research.

“It is clear that longer-term holders at the retail level are also accumulating, the number of wallets holding relatively small amounts of bitcoin is indeed increasing,” said Jay Fraser, chief strategy officer at the exchange. BSTX.

“Don’t underestimate the impact of retail HODLers,” Fraser added, referring to a cohort whose name emerged years ago from a trader misspelled “hold” on an online forum. “Their lack of selling is helping to create more scarcity, so eventually a supply shock for bitcoin will happen again.”

INSTITUTIONS ‘DROP THE MARKET’

So what about those deep-pocketed institutional players who jumped on the crypto bandwagon when prices were high?

They sold hard, according to some market participants who claim that these big investors have been the main driver of the crypto crisis over the past few months.

In the week to August 19 – the week that saw bitcoin slide again – the digital asset investment products favored by traditional institutional finance players saw outflows of around $9 million according to Coinshares data.

“The laggards – institutions that have come close to the highs or the $30,000 to $50,000 levels – are the ones that have dragged the market down the most,” said Ed Hindi, chief investment officer at Tyr Capital Partners.

Hindi pointed to a steep discount between futures prices and the spot price of bitcoin on the CME exchange as further evidence of institutional decline.

The discount for the most-traded contract hit an all-time low of 3.36% last week, analysts at Arcane Research said.

‘READY TO BUY DIP’

But don’t count the institutional players – there’s plenty of evidence they haven’t given up on bitcoin, which has fallen 70% since its all-time high of $69,000 hit in November, and is down 56% since the beginning of 2022.

Some market watchers point to the decision by BlackRock, the world’s largest asset manager, to launch a private bitcoin investment product specifically aimed at institutional investors as a strong sign that demand remains strong and could drive the crypto out. slump. Read more

Andy Edstrom, managing director of Swan Advisor Services, said his firm has continued to see interest from financial advisors and their clients in bitcoin investments despite some “good weather interest” waning.

“Some advisors are ready to buy the dip, they tell us ‘I have dry powder to invest in $20,000 in bitcoin,'” he added.

Reporting by Lisa Pauline Mattackal and Medha Singh in Bengaluru; Assembly Pravin Char

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