Why hasn’t Bitcoin’s price been going up lately?
By: Jan Wuestenfeld
Tags: Market, Bitcoin, Price, Report, Money

Why hasn’t Bitcoin’s price been going up lately?

“Why isn’t Bitcoin’s price going up?”, that’s a question I have read more often recently on Twitter. Particularly in replies to tweets of the Whale Bot Alerts showing substantial outflows from exchanges. The tweet by Elon Musk announcing that Tesla is not accepting Bitcoin for payments anymore, combined with the announcement that Binance is under investigation in the US on May 13, has been tanking bitcoin’s price at times below $48k in the last days. While bitcoin might correct even lower, particularly if there should be more FUD coming out in the coming days/weeks, the general sentiment has been bullish, and by the time of writing bitcoin’s price already has somewhat recovered to above $50k. E.g. long-term holders have been back in accumulation mode for some time, according to Glassnode data. Overall, I think that correction has been healthy. It has lead to coins being distributed from weaker hands to those with a history of not selling. So there are fewer coins to be potentially sold into the next move up which would suppress the next break out.

Coinbase has been the most relevant exchange to look at more recently. That is the exchange where large investors typically have been accumulating their bitcoin, be it Grayscale, Micro Strategy, Tesla or other unknown big investors. While the pace of the drop in bitcoin balance on Coinbase has slowed down a bit, the balance is still dropping (see Graph 1). From April 11 until April 29, the balance has been going more or less sideways before continuing to decline substantially again. While the declines are not as significant as at the beginning of this year, the balance has still been decreasing. So why hasn’t bitcoin’s price been going up?

Graph 1: Bitcoin balance on Coinbase

Looking at the overall trend of bitcoin balance held on spot exchanges, the picture changes slightly (see Graph 2). Since the second week of April, the balance has stopped going down or even been going up (particularly in the last days).

Graph 2: Bitcoin balance on spot exchanges; Source: Glassnode

Where is that difference coming from? The difference seems to be primarily caused by inflows into Binance. Binance has seen substantial increases in its bitcoin balances since mid-December 2020 (see Graph 3) (for further reference, see the exchange balance (stacked) in Graph 5 in the Appendix).

Graph 3: Bitcoin balance on Binance; Source: Glassnode

Binance is one of the exchanges known for altcoin speculation, and an exchange that is primarily used by retail investors. I interpret these strong inflows as follows: Retail is depositing their bitcoins onto Binance to speculate in altcoins in the hope of bigger gains. This is also supported by the drop in Bitcoin dominance from above 70% per cent at the beginning of the year down to nearly 41%. So it looks like retail is diverting flows from bitcoin to other coins, suppressing bitcoin’s price. It suggests that at the moment retail is in control of bitcoin’s price and keeping it from breaking out above $60k (ignoring the most recent influence of Elon Musk, of course).

According to the stable coin supply ratio, there are more stable coins in the market relative to the bitcoin market cap (Bitcoin Market cap / Stablecoin Market cap). There is a lot of money flowing around in the crypto markets, which currently seems to end up primarily in altcoins. Once this turns, there is a lot of firepower here that can potentially flow into bitcoin.

Graph 4: Stable Coin Supply Ratio; Source: Glassnode

To my mind, two scenarios would send bitcoin back above the $60k barrier again. First, if some of that money currently is in altcoins and stable coins is flowing back into bitcoin. The second and more likely scenario seems to be that we see more substantial inflows of bigger investors again and/or a big company/entity announces significant bitcoin holdings.

The latter scenario would be the more bullish one. In addition to the inflows of large investors that would have triggered the run, once bitcoin is breaking out again and new ATHs are in sight, retail money will likely start flowing back into bitcoin from altcoins and some of that firepower in stable coins will flow into bitcoin.

Nevertheless, as mentioned before, bitcoin’s price might go lower in the short-term if some more negative news come up.

For more regular updates follow me on Twitter: @JanWues

Disclosure: The above article references an opinion and is for information purposes only. It is not intended to be investment advice.