Bitfinex Alpha | Despite Recent Falls in Price, Bitcoin Has Never Looked Stronger

The foundational strength of Bitcoin remains unshakably secure. As the network celebrated its billionth transaction last week, we are reminded that aside from all the attributes Bitcoin holds as a store of value and a hedge against monetary policy inflation, it is also still a fast and cheap way to transfer assets from peer-to-peer, with no intermediaries, banks or governments to act as a centralised authority.

In the last week, however, Bitcoin has come under selling pressure and it has seen its price drop from about $65,000 earlier in the week to $60,000. The source of the selling seems to be mainly short-term holders (holders for 155 days or less), but they have not been joined by long-term investors. Indeed, the previously observed long-term holder distribution that was seen in April seems to have waned, and on-chain data indicates that they do not seem to be participating in the latest sell-down.

If this trend persists, then we might be able to soon conclude that the bottom is already in and upside growth potential has increased. The recent volatility in daily net flows into the US Bitcoin ETFs also suggests that there is mixed investor sentiment, indicative of a near-term floor for the price being reached. Last Wednesday, for example, there were no flows at all into all but one of the US Bitcoin ETFs; on Friday, Blackrock’s popular ETF saw inward flows, but these were dwarfed by the outflows from the Greyscale ETF, GBTC. But on Monday of last week, as well as on the previous Friday, every fund, including GBTC, saw net positive inflows. This ongoing ebb and flow of capital into BTC ETFs, with no clear direction either way, supports our view that the bottom could almost be in.

In the macroeconomy, we also see a market turning cautious ahead of any clear direction emerging. The Fed’s hawkish approach to inflation has led to a tightening in lending and a decline in US wholesale inventories. The contraction in both inventory levels and borrowing activities implies that businesses are bracing for a slowdown, adjusting their operational strategies in anticipation of softer economic conditions.

This cautious sentiment is also mirrored in consumer behaviour, with US consumer confidence dropping to a six-month low in May, driven largely by heightened concerns about inflation. 

Meanwhile, in crypto-land, the US House of Representatives passed a resolution against the SEC’s requirement for banks to account for customer-held crypto on their balance sheets. While this is viewed as a positive development, President Biden has opposed the resolution, advocating for the necessity of regulatory guardrails to ensure the stability and integrity of the crypto industry.

The SEC is also at the centre of the ongoing litigation that it has taken against Ripple Labs, with the SEC challenging Ripple’s defence against allegations of recklessness in its XRP transactions. The SEC is arguing that it should be able to impose punitive measures against Ripple to deter it from potential future violations – even though Ripple has not recorded any breaches of SEC rules since 2020.

Have a good trading week!

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