Oct 15, 2021
Bitcoin On-Chain Market Wrap Up — More OTC Deals Happening?
Context on Network Activity and Who is Buying
It’s been a bit more than a week since the writing of the Bitcoin On-Chain Market Wrap Up article. With Bitcoins price trading around $60k, I would like to briefly update how the on-chain data has evolved since then and give more context by adding some additional relevant data.
Most of the metrics have not changed substantially, such as e.g. the Bitcoin exchange reserves. Therefore I am not going to talk about all of them in detail. For further reference, you can find those I do not discuss at the end of this article in the Appendix.
The 7-day net Bitcoin fund flows continue to be in positive territory.
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As of yesterday, more than 806k Bitcoin are held by funds. Since October 5, more than 4.5k Bitcoin have been added to funds holdings. With that, the holdings of funds are now only roughly 6.5k Bitcoin away from its previous all-time high in May.
The 7-day moving average of the number of active addresses continues to be at a higher level than in the last months. As I already mentioned in the previous article compared to the first half of the year, it is still relatively low.
Considering that searches for Bitcoin on Google have not substantially increased with Bitcoins recent price recovery, it seems likely that retail is not significantly looking at Bitcoin again. I suspect this will come back once Bitcoins price breaks out of its previous all-time high and makes new highs. This could explain why the number of active addresses is not back to new all-time highs.
In comparison to the number of active addresses, the 7-day moving average of total Bitcoin transferred remains high since the end of August and substantially above what we have seen throughout the year and the previous all-time high of Bitcoin. So why is the amount of total Bitcoin transferred increasing substantially while the number of active addresses is still comparably low?
The all exchanges bitcoin fund flow ratio can give us an idea of where these large transfers are coming from. The fund flow ratio is defined as follows:
For example, an increase in the ratio means that more transfers on the network are related to exchange transfers. Since the end of May, this ratio has been trending lower, and hitting new lows this year. Following this, more and more Bitcoin transferred is not related to exchange flows. So the pick up in on-chain Bitcoin transfers is primarily not related to exchange transfers.
While we can’t say for sure, this might indicate that increasingly OTC deals are happening, driving Bitcoins price. This would also explain why while the price is approaching all-time high territory, the number of active addresses is not close to what we have seen during the first months of this year (other reasons might be the increase in Lightning network capacity, as I explained in the previous article).
Of course, we cannot solely attribute the recent price recovery to whales and OTC deals. Capital already in the space appears to have been deployed as well. Just days before the price recovery, the stable coin supply has started to decline on exchanges. While a decline in stable coins held on exchanges can also be caused by people cashing out their stable coins into e.g. USD, it would be quite a coincidence that both happened almost simultaneously. More likely capital that has been sitting on the sidelines has been deployed to buy Bitcoin.
In summary, funds continue to add new Bitcoin to their holdings. Network activity is picking up again, particularly regarding the total Bitcoin transferred, which since the end of August are well above the previous months of the year. This could be due to an increase in whale activity and potentially OTC deals. The second driver of the price recovery might be due to capital sitting on the sidelines being converted on the sidelines. New retail appears not to be entering the space in significant numbers again yet. This is good news as this means to break out of the previous all-time high, fresh capital from retail is not needed. However, it is unfortunate as I would prefer to see as much retail as possible to stack sats before more institutional money flows into the space.
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.
Appendix
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