Recently the crypto exchange Bitfinex released its 64th weekly Bitfinex Alpha report.
The report analyzes both crypto and traditional markets, and comes to the conclusion that the current situation suggests that Bitcoin markets appear to be increasingly bullish.
The report was written before yesterday’s drop, but the fact that Bitcoin’s price still did not fall below $29,000 does not call into question its conclusions.
Summary
The reasons for the positive sentiment from crypto exchanges
The main reason why Bitcoin markets seem to be increasingly bullish is the continued reduction in the supply of BTC on crypto exchanges.
In particular, it has returned to early 2018 levels, with balances down about 32%, and with only 11% of the total circulating supply present on exchanges to date.
Given that BTC is generally sold on exchanges, the fact that there are so few of them means that many of those who own Bitcoin right now prefer to keep them on non-custodial wallets because they do not find it convenient to sell them.
Of course, this figure varies over time, and it generally rises when prices go up, because at that point selling becomes more convenient.
What’s more, the report also points out that demand from both institutional and retail investors is increasing, thanks in part to the largest inflow of capital into cryptocurrency-backed investment funds since 2021: $137 million last week alone.
In the report they write:
“It appears to be a perfect storm as the decrease in balances is indicative of longer-term holders moving coins to cold storage, while the rise in fund flows is evidence of increased demand from traditional fund investors.”
The behavior of whales
In addition to this, the report notes that there has also been some unusual activity among whales in recent times.
In particular, the Whale Ratio metric, which measures the activity of the largest active addresses as a proportion of total market value, has seen a significant increase in the past 72 hours.
This was due to Bitcoin deposits on crypto exchanges, and while this could lead to increased selling pressure, on-chain analysis suggests that this increase is primarily due to the US Department of Justice allegedly moving funds seized from Silk Road.
Another reason behind the increase in the Whale Ratio could be the significant reduction in the total value locked up on DeFi protocols. From nearly $46 billion on 14 July to the current $43 billion, although it had fallen below $41 billion in mid-June.
Perhaps investors are moving some of their assets off DeFi protocols because of perceived particularly high risks, or the search for better opportunities elsewhere.
Also confirming that the whales are in business would be the current dominance of the crypto derivatives market over the spot market. Moreover, the number of overly aggressive market participants is decreasing, as is the volume of liquidations with excessive leverage.
This suggests that retail activity has declined quite a bit, while institutional activity may actually have recovered somewhat.
The macroeconomic situation
Mixed signals are also coming from the macroeconomic situation.
Indeed, on the one hand there are rising monthly retail sales, indicating an increase in consumer confidence.
However, on the other there is sharply declining industrial production, which raises concerns about the current stability of the economy.
The assumption is that in recent months there has been a bit too much optimism about short-term expectations, which has since been belied by the facts. As with home builders, who after being consistently optimistic for months have now experienced some setbacks.
The underlying problem would be the long progression of interest rate increases, which seems to play a key role in limiting growth, particularly of new housing projects.
The leading economic indicator in the United States, the Leading Economic Index, also fell for the 15th consecutive month, suggesting that a recession could potentially be near.
However, should the recession not be particularly severe (the so-called soft landing), and should inflation data in the coming months be so good that the Fed stops raising rates, the scenario could turn bullish again.
For this reason, Bitfinex analysts write that they see a constructive picture emerging for Bitcoin and the crypto industry, although long-term market performance will ultimately mostly reflect sentiment around the economy and regulatory clarity.
