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Short-term investors buying Bitcoin offer the liquidity longer-term holders need to sell.
Dreamstime
The smart-money in
Bitcoin
may be heading for the exits.
Long-term holders of Bitcoin appear to be taking profits, reducing net holdings for the first time since May, according to blockchain data provider Glassnode and Fundstrat Digital Asset Research. Sales by such investors totaled 77,768 coins over the past seven days, worth at least $4.7 billion with prices over $61,000 for each coin.
A bearish sign? Not necessarily, according to analysts at Fundstrat. They point out that the outflows are being more than offset by new money coming into Bitcoin. The total amount of Bitcoin held by short-term investors increased by 186,347 coins over the last few weeks, indicating that new investors are soaking up sales from long-term holders.
“Short-term holders are returning to the market and providing the liquidity needed by long-term holders,” Fundstrat analyst Sean Farrell and Will McEvoy wrote in a note on Thursday. “Short-term holders entering the fold is a good sign as this provides exit liquidity to longer-term holders.”
Bitcoin’s upward price momentum tends to fade after the coin reaches an all-time high. The coin was trading down 5% on Thursday to around $65,000. That is down from peak levels around $68,740, but well above technical support at $52,900, according to the crypto research firm Fairlead Strategies.
Historical patterns imply more gains ahead. Bitcoin tends to gain an average 36% over the 30-day period after it hits an all-time high, according to Fundstrat.
Other coins may fare even better. Ether, which also hit records recently, gains an average of 54% in the 30 days after reaching a new peak. “Alt-coins,” a category that includes other large cryptos, gain an average 61% after hitting all-time highs.
Some of those alt-coins could be a good bet on the growth of decentralized-finance, or DeFi trading, lending and borrowing. Much of the trading volume and total value held on DeFi platforms is based on the Ethereum blockchain, but that has resulted in a congested network with relative high transaction fees.
Ethereum has declined from almost 100% of the DeFi value locked on its blockchain to 70% currently, according to JPMorgan Chase. Other blockchains now impose lower transaction fees on DeFi users. And rival blockchains offer innovative features that could challenge Ethereum for “smart contracts” and applications used for trading, lending, and borrowing cryptos.
Three DeFi networks gaining traction are Avalanche, Fantom, and Terra, according to JPMorgan.
Avalanche uses an “innovative high-speed validation mechanism” to process transactions, and the technology is enabling more scalable applications on its blockchain, JPMorgan says. Fantom offers similar modularity and customization, giving each application its own mini-blockchain, the bank says. Terra is expanding as a platform for issuing stablecoins—tokens designed to maintain a fixed value. The network design can help reduce volatility in stablecoins and it could gain traction for cross-border payments, according to JPMorgan.
Each network has its own native token: Avalanche (AVAX), Fantom (FTX), and Terra (LUNA). They could pose challenges to Ethereum, and its native token, Ether, if that network continues to levy high fees and suffer from congestion.
Write to Daren Fonda at daren.fonda@barrons.com