Whales And Institutions Signal Appetite For BTC Through Price Slump: Analysis

While the regulatory uncertainty in the US is hampering crypto adoption and prices have crashed following the recent enforcement actions taken against Coinbase and Binance by the SEC, bitcoin is continuing to find large, patient buyers who are prepared to look to the long term.

Is this all just part of a normal crypto market cycle? There are good reasons to think so.

Whales Accumulate

In a recent blog, we explored how bitcoin whales have been quietly accumulating coins, despite (or more likely, because of) the recent price dip. Whales—typically understood as wallets that own between 100 and 10,000 BTC—have been adding around 1,000 BTC to their holdings over the last month. Traders pay close attention to what the "smart money" of the markets is doing, because these traders and institutions have better information, training, discipline, and backing than regular retail traders. There's a reason why big money gets to be, and stay, big.

While that accumulation may have slowed or even stopped now, analytics firm Santiment has shared its view that whales are parking funds in stablecoins, rather than fiat, which signals an intention to deploy back into the market rather than withdraw entirely.

Microstrategy: A Proxy For Bitcoin

Another trend to watch is that of large entities buying Microstrategy stock. Since there is currently no Bitcoin ETF in the US, large and regulated institutions struggle to gain exposure to BTC. However, they can buy MSTR, which is a publicly traded company and holds more than 140,000 BTC, making it a strong proxy for bitcoin.

In Q1 2023, Blackrock, Bank of America, and Fidelity collectively bought almost $250 million of MSTR.

As a general rule, around 80% of equity market cap, including tech stocks, is owned by institutions. Over time, we might expect the same to be true of BTC.

Exchange Supply

Coins have been flying off exchanges. The amount of BTC held on exchanges has dropped to its lowest since February 2018.

This is usually a bullish sign, since traders tend to keep coins on exchanges more when they expect to sell them in the near future. Withdrawing coins to self-custody them indicates an intention to hold for the long term.

There are two caveats in this instance. Firstly, those withdrawals don't point to price movement on a daily or weekly level. The significance is more of a long-term correlation.

Secondly, the picture is clouded this time around due to the collapse of FTX and regulatory action against Binance and Coinbase, which have given users additional reasons to manage custody themselves.

Sentiment

Traders' sentiment about crypto is extremely negative—the worst it's been in over three years. While this sounds bad, remember that sentiment is often a contrarian indicator. When sentiment can't get any worse, that's when things have to get better. The reason for that is simple: When traders are collectively so bearish, anyone who is going to sell their coins has likely already done so, and there is no one left to drive prices lower.

#Bitcoin | Notice that investors' sentiment about $BTC hasn't been this negative since the COVID-19 #crypto market crash in March 2020.

If there's one thing that #BTC has demonstrated, it's that it doesn't follow the herd! pic.twitter.com/RsQdD6zySo

— Ali (@ali_charts) June 13, 2023

Synthesis

Markets are inherently emotional, driven by fear and greed. The most successful traders and investors are the ones who manage to read the emotional state of the market but not succumb to it, making rational, data-driven decisions.

Markets move in cycles, and the recent peak and dip is not out of character for bitcoin—which has moved up 100% from its bear market low at the end of 2022, and now pulled back some 20%. This is not unusual behavior.

And, while the SEC's activity is unpleasant and concerning, once again it's nothing abnormal. Previous cycles have seen their share of regulatory action, government and banking crackdowns, perhaps most notably from China—which was once a major market for crypto and the home of a large percentage of miners. Additionally, while the US is pushing crypto companies out, other jurisdictions are welcoming them in.

Markets breathe. Within each macro cycle, there are many smaller cycles as traders' collective emotions fluctuate between bullish and bearish and BTC becomes overbought and then oversold on different time frames.

#bitcoin. Imagine still being bearish on this chart.
Perfectly structured 4yr cycle in the early phase.

A pullback in June to the lower $20k's would be a tremendous gift. pic.twitter.com/pfIuIGkCj2

— Bob Loukas (@BobLoukas) June 1, 2023

Subscribe to our newsletter and follow us on Twitter.