Bitcoin (BTC) has experienced a remarkable 21% price rally in the past week, reaching $52,000, a level not seen since December 2021. This surge in price can be attributed to the increasing inflow into spot Bitcoin exchange-traded funds (ETFs), which reached a peak of $631.3 million on February 13. Traders are speculating whether over-the-counter (OTC) desks have exhausted their coin reserves, forcing them to resort to spot buying on regular exchanges. This situation has created an imbalance that favors bullish momentum.
It is important to debunk the misconception that arbitrage desks are always net long, meaning they are always buyers and have directional exposure to the price. While having a significant spot market position is important for their business, they often hedge their positions using derivative contracts. Additionally, not every OTC deal requires a buyer and seller, as intermediaries can utilize spot exchanges’ order books and futures contracts to fulfill requests. Therefore, whether an arbitrage desk has an immediate coin transfer “buffer” or not does not impact the price dynamics.
If spot Bitcoin ETF issuers have added a net $1.84 billion worth of BTC in the past week, it means other entities must have sold the same amount. The crucial question for price formation is how desperate each side is to close the deal. Long-term holders, who have not moved their coins in over six months, are typically less likely to sell after a price rally. This is why analysts turn to on-chain analysis to gauge investor strength and conviction.
According to data from Glassnode, short-term holders, whose addresses were funded less than six months ago, significantly increased their transactions to exchanges, averaging 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 primary sellers are short-term holders. Despite long-term holders holding 79% of the supply, rapid sell-offs by short-term holders can still occur.
Some may argue that whales who bought Bitcoin in anticipation of the spot ETF launch are now selling, making it difficult to achieve higher price breakthroughs. However, data shows that this is not the case. In fact, every class of holder, except for very large whales holding above 100 BTC (likely institutions), has been a net seller in the past seven days. These institutions added a total of 20,168 BTC, valued at over $1 billion, and this can be attributed to spot Bitcoin ETF issuers such as BlackRock, Fidelity, BitWise, Ark 21Shares, and others. The data suggests that as the Bitcoin price rallies, demand for ETF products increases, providing strong support for bullish momentum.
This data indicates that a rally above $55,000 is no longer solely dependent on retail flow. Therefore, traditional indicators like Google search trends or the “Fear and Greed Index” may not accurately reflect institutional investors’ risk appetite and subsequent demand for Bitcoin.
In conclusion, short-term Bitcoin holders have been rapidly sending coins to exchanges, yet the price has surged from $42,900 to $52,000 in seven days. Unless long-term holders decide to reduce their positions beyond a certain price level, it seems that the supply side is weakening, favoring further gains above $52,000. It is important to note that this article does not provide investment advice or recommendations, and readers should conduct their own research before making any investment decisions.