Bitfinex Alpha | Supply Tightening as Bitcoin Halving Looms

Early indications, following the sharp sell-off in Bitcoin seen on Saturday after Iran launched drones and other missiles towards Israel, was that the correction was more a futures-driven move than a fundamental one.

Friday and Saturday last week recorded the largest two day liquidations – at over $1.8 billion – in crypto history, but a key metric that emerged following the selldown was that funding rates in crypto perpetual markets neutralised and even turned negative across a few altcoins, suggesting that this correction has been healthy and volatility may even reduce. The rebound in BTC to $65-66,000, after going below $60,000 in futures markets on Saturday, suggest the market took the sell down in its stride. 

More fundamental to Bitcoin price dynamics is this week’s halving, which as it approaches, has seen a notable surge in BTC leaving centralised exchanges, and a decrease in the inactive supply of BTC that has not moved in over a year, to an 18-month low.

This seems indicative of Long-Term Holders (LTHs) either continuing to trim their holdings or moving their assets off exchange. There has certainly been an observable shift in the makeup of the Bitcoin investor base, with new entrants (Short-Term Holders) absorbing the supply sold by LTHs. This is evidenced by the rising Market Value to Realised Value ratio for STHs, albeit it is still below peak levels seen in previous cycles. If this dynamic of STHs absorbing LTH sell downs persists, then it could indicate room for further price growth.

All this is taking place against the backdrop of a US economy where inflation looks like it still has some fight left in it, and any prospect of early cuts in interest rates, rapidly diminishing. March consumer prices rose unexpectedly, and even more gentle increases in producer prices has not brought much optimism back into the market.

The broader labour market continues to exhibit strength and small businesses are increasingly feeling the pinch of inflationary pressures, with many reporting hikes in their selling prices and plans to further increase prices in the near future. This trend underscores ongoing inflation challenges and supports the Federal Reserve’s cautious stance towards any immediate reduction in policy rates.

Adding to the economic uncertainty, consumer confidence dipped in April, influenced by persistent inflation and an uptick in fuel costs over the previous quarter. This decline in consumer sentiment, alongside the broader economic indicators, suggests that interest rate cuts may come only as late as September.

In crypto news this week, Uniswap, the leading decentralised finance platform, announced that it had received a Wells notice from the US Securities and Exchange Commission, which is arguing that it is offering unregistered securities on its platform. Uniswap is contesting this, arguing in particular that certain tokens, such as stablecoins and utility tokens, should not fall into this classification.

In Europe, regulatory developments are also shaping the operations of crypto exchanges. Kraken announced the delisting of Monero, a privacy-focused crypto asset, for its customers in Ireland and Belgium, apparently responding to its need to be compliant with new EU Anti-Money Laundering Regulations. 

On the more positive side, however, Bitfinex Securities El Salvador S.A. de C.V, the El Salvador registered securities platform of Bitfinex, announced it was launching a tokenised debt issue to fund the construction of a new Hampton by Hilton hotel complex at El Salvador International Airport. It marks the first issuance to be arranged and traded on Bitfinex Securities El Salvador since it became the first licensed entity under the country’s Digital Asset Securities Law. Bitfinex said it has a healthy pipeline of additional future issues that it expects to eventually bring to market.

Have a good trading week!

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