The traditional view is that when a large number of bitcoins withdraw from the exchange, the disciples will accumulate coins in their cold storage, which is probably forever. The reality is much more complicated than this. The outflow of Bitcoin in 2021 has a lot to do with another important digital asset: stablecoins.
But first, how did we get here: The crypto industry is still unsatisfied with FinCEN’s proposal to require crypto exchanges to collect data on both sides of any outgoing transaction. Now, advocates of cryptocurrency have a civil liberties group standing in the comments of the proposal. That makes me wonder, how much are we talking about?
The above table shows the estimated notional value of bitcoins flowing out of exchange wallets, summed on a monthly basis. The actual number may be larger. It is worth noting that Coinbase spends more time disguising its Bitcoin addresses than most exchanges, so the largest U.S. accessible exchange by volume is almost certainly undervalued here.
However, $60 billion per month is really not a small nee. No wonder regulators pay attention to these flows.
You are reading Encrypt long and short, This is a newsletter that pays close attention to the various factors driving the development of the cryptocurrency market. Written by Noelle Acheson, the head of research at CoinDesk, the report is published every Sunday and reviews this week from the perspective of professional investors-including insights and analysis. You can subscribe here.
Most of the increase in capital outflows can be attributed to Bitcoin’s extraordinary first quarter price movement. This is the record first quarter of the Orange Coin. According to data from CoinDesk Research, historically, for whatever reason, the first quarter was a weak quarter, with five years of negative returns in the past seven years. In 2021, Bitcoin rose by 103% during the quarter.
However, this is not all. Another record last week: The outflow of funds denominated in Bitcoin hit a single-day high, and 1,365 BTC was transferred from the exchange within 24 hours.
Some people boldly explained these transfers: Bitcoin transfers Bitcoins from exchanges to cold storage. Cryptocurrency analyst Willy Woo called these crooks “Rick Astleys” because the British pop singer’s 1987 number one single “Never Gonna Give You” Up) appropriately describes their feelings about Bitcoin.But as I said on CoinDesk TV Everything about Bitcoin Last Friday’s performance was probably Stevie Wonders. Meaning, they are “part-time lovers”.
What I mean is: One of the potential market dynamics in the past three years is the rise of stablecoins. In particular, Tether (USDT) has replaced Bitcoin as the dominant quotation currency for crypto altcoin transactions. This means that when I want to use cryptocurrencies to buy cryptocurrencies on exchanges, I am more likely to use tethers or, to a certain extent, Circle’s dollar-linked stable currency, the U.S. dollar coin (USDC).
What we are looking at here is the number of quoted currencies, the number of markets priced in Bitcoin, and the first two stablecoins of the top four altcoins: ether, cardano, chainlink and Stellar lumens, which are included in TradeBlock’s Bitcoin XBX index Three exchanges, as well as Binance. Therefore, this is just an example of the market, but it is significant. (TradeBlock is owned and operated by CoinDesk, and its XBX index comes from the most liquid exchange that American investors can access, and I use Binance as a reliable agent in the rest of the world.)
As shown in the figure, by the beginning of 2020, earth-shaking changes have taken place, and stablecoins have replaced Bitcoin as the main cryptocurrency. Since then, Tether and USDC have continued to swallow more and more quote currencies, replacing more and more Bitcoin. Relative to the two largest stablecoins, Bitcoin’s offer volume has now fallen to 12%. Therefore, more and more Bitcoin outflows reflect this trend: as the transaction volume shifts from the market of Bitcoin quotes to the market of tether quotes, the exchange wallet balance reflects this trend.
In other words, when it comes to the popular Bitcoin outflow narrative as a signal of bullish grocer activity, I think this is the story that Doobie Brothers dreamed of: “The fool believes.” On this indicator, I tend to lean more towards Tina Turner, wondering “what does love do with it?”? My advice to investors is to stay like Daryl Hall and John Oates and keep their “private eyes” watching the market closely.
The trading price of Bitcoin is between US$50,000 and US$60,000, and it seems that it may break through every day for more than a month. Pay attention to the tea-based narrative in the blockchain data.