Bulls in bitcoin aim for $55K+ as the supply of short-term sellers shrinks

Written by Rock Buivy

Post Date: 17 Feb, 24

Even if the price of Bitcoin has increased by 21% over the last week, major financial institutions are still adding Bitcoin to their reserves.

Over the last seven days, the price of bitcoin has increased by 21%, hitting $52,000 for the first time since December 2021.

The primary cause of the price increase is the increasing amount of money flowing into spot Bitcoin exchange-traded funds (ETFs), which peaked on February 13 at $631.3 million.

Traders are guessing as to whether coin reserves held by over-the-counter (OTC) desks have run out, forcing them to spot purchase on normal exchanges and producing an imbalance that favours positive momentum.

While such a hypothesis is easy to believe and somewhat misleading, on-chain data from Glassnode shows a decrease in short-term holders’ supply, and if conditions are sustained, Bitcoin price could rally above $55,000.

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Short-term Bitcoin investors have been liquidating quickly

The myth that arbitrage desks are always net long (buyers), implying that they have directional exposure to the price, must be debunked.

Although holding a sizable position in the spot market is essential to their company, derivative contracts are frequently used to hedge it.

Similar to this, not all OTC transactions need a buyer and seller because middlemen can fulfil orders using the order books of spot exchanges and futures contracts.

In other words, the price dynamic remains unchanged regardless of whether the arbitrage desk has a “buffer” to move coins instantly.

Consequently, if spot Bitcoin ETF issuers added a net $1.84 billion BTC in the past week, other entities must have sold the same quantity.

“We need to dispel the idea that arbitrage desks are always net long. Large spot market positions are frequently hedged via derivative contracts. A buyer and seller are not necessary for every OTC transaction; middlemen can complete orders through futures contracts and spot exchange. The arbitrage desk buffers have no effect on the pricing dynamic. Others must have sold the same amount of Bitcoin if spot ETF issuers added $1.84 billion in the cryptocurrency.”

The crucial question for price formation is how desperate each side is to close the deal.

Long-term holders, addresses that have not moved their coins in over 6 months, are typically less likely to sell after a price rally.

This is why analysts turn to on-chain analysis to provide a rough idea of how resilient the market may be amid fluctuations as a gauge of investor strength and conviction.

According to data, during the last week, short-term holders – accounts funded less than six months ago – significantly boosted the amount of BTC they sent to exchanges on average – 49,504 BTC every day.

During the same period, long – term holders sent only 2,023 BTC each day, indicating that short – term holders are the ones who are selling most of the cryptocurrency.

Even if long-term holders own 79% of the supply, sell – offs could happen quickly.

In the previous week, addresses with fewer than 100 Bitcoin were net sellers

But it’s possible to counter that whales who bought Bitcoin ahead of the spot ETF launch are already active sellers, which makes it difficult to make bigger gains. However, data indicates that this is untrue.

With the exception of very huge whales that had more than 100 BTC and probably represented institutions, every type of holders was a net seller during the previous seven days.

It is possible to ascribe the addition of 20,168 BTC, or more than $1 billion, by these investors to spot Bitcoin ETF issuers including BlackRock, Fidelity, BitWise, Ark 21Shares, and others.

The data indicates that as the price of Bitcoin rises, there is a greater demand for ETF products, which supports the positive momentum even though the durability of this influx is questionable.

This data proves that retail flow is no longer the only factor driving a rally above $55,000.

As such, past results-driven measures, like Google search patterns or the “Fear and Greed Index,” might not fully reflect institutional investors’ willingness to take on risk and the ensuing demand for Bitcoin.

Even if short-term Bitcoin holders have been moving their holdings to exchanges quickly, the price has increased by 21% in just 7 days, from $42,900 to $52,000.

All indications indicate to a weakened supply side, favouring further increases above $52,000, unless long-term holders choose to reduce their positions beyond a specific price level.

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