Bitcoin (BTC) has experienced a remarkable surge in price, climbing by 21% in the past week and reaching $52,000, a level not seen since December 2021. The driving force behind this price rally is believed to be the increasing inflow into spot Bitcoin exchange-traded funds (ETF), which hit a peak of $631.3 million on Feb. 13. Traders are now speculating whether over-the-counter (OTC) desks have depleted their reserves of Bitcoin, leading them to resort to spot buying on regular exchanges. This situation has created an imbalance that favors bullish momentum.
Although the idea that OTC desks have exhausted their coin reserves and are now resorting to spot buying may seem plausible, it is somewhat misleading. On-chain data from Glassnode actually shows a decrease in the supply of Bitcoin held by short-term holders. If this trend continues, it is possible that the price of Bitcoin could rally above $55,000.
It is important to understand that arbitrage desks, which play a crucial role in the market, are not always net long (buyers). They often hedge their spot market positions using derivative contracts. Furthermore, not every OTC deal requires a buyer and seller, as intermediaries can fulfill requests by turning to spot exchanges’ order books and futures contracts. Therefore, whether an arbitrage desk has an immediate buffer of coins to transfer or not does not affect the price dynamic.
As a result, if spot Bitcoin ETF issuers have added a net $1.84 billion worth of BTC in the past week, it means that other entities must have sold the same quantity. The key question for price formation is how desperate each side is to close the deal. Long-term holders, who have not moved their coins for over 6 months, are typically less inclined to sell after a price rally. This is why analysts rely on on-chain analysis to gauge the market’s resilience amid fluctuations and assess investor strength and conviction.
Data from Glassnode reveals that short-term holders, who funded their addresses less than 6 months ago, significantly increased their transactions to exchanges, sending an average of 49,504 BTC per day in the past week. In contrast, long-term holders only sent 2,023 BTC per day during the same period, suggesting that the main sellers are short-term holders. Despite the fact that long-term holders hold 79% of the total supply, rapid sell-offs could still occur.
However, it could be argued that whales who bought Bitcoin in anticipation of the spot ETF launch are now active on the sell side, making it difficult to achieve higher breakthroughs. But the data tells a different story. In the past 7 days, every class of holder except for very large whales holding above 100 BTC has been a net seller. These large investors, likely representing institutions, added a total of 20,168 BTC, valued at over $1 billion. This can be attributed to spot Bitcoin ETF issuers like BlackRock, Fidelity, BitWise, Ark 21Shares, and others. While the sustainability of this inflow is uncertain, the data suggests that the demand for ETF products increases as the price of Bitcoin rallies, providing strong support for bullish momentum.
This data indicates that a rally above $55,000 is no longer solely dependent on retail flow. Therefore, indicators that previously reflected retail behavior, such as Google search trends or the “Fear and Greed Index,” may not accurately reflect institutional investors’ appetite for risk and their subsequent demand for Bitcoin.
Short-term holders have been quickly sending their coins to exchanges, yet the price has surged from $42,900 to $52,000 in just 7 days, a gain of 21%. Unless long-term holders decide to reduce their positions beyond a certain price level, all signs point to a weakened supply side, which favors further gains above $52,000.
It is important to note that this article does not provide investment advice or recommendations. Every investment and trading decision carries risks, and readers should conduct their own research before making any decisions.