Who is Driving the Crypto Rally?
A dive into the type of players pushing BTC higher
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This week we evaluate the players driving the recent surge in crypto markets. Particularly, we dive into on-chain metrics for Bitcoin, helping segment the size, geography and recency of the participants accumulating throughout 2023.
Network Fees — Sum of total fees spent to use a particular blockchain. This tracks the willingness to spend and demand to use Bitcoin or Ether
- Bitcoin fees doubled compared to last week with Ordinals transactions reaching their highest since May
- Fees on Ethereum also climbed along with market volatility and DeFi volumes
Exchanges Netflows — The net amount of inflows minus outflows of a specific crypto-asset going in/out of centralized exchanges
- $260M worth of Bitcoin was transferred into exchanges in net
- ETH recorded $320M in outflows this week, and over $1B through the last three weeks
Who is Driving the Crypto Rally?
Bitcoin’s price has increased 30% over the last month, approaching yearly highs on Wednesday prior to retracing on Thursday. Many point to the upcoming spot ETF deadlines as the main catalyst driving the recent surge in prices. Diving into on-chain data we can get further clarity into the entities that have been buying Bitcoin and leading the rally.
New Money Coming In — There are signs growing of new entrants buying Bitcoin
- The percentage of active addresses that are newly created, as tracked through the New Adoption Rate indicator, reached a yearly high of 67.62% this week
- Bitcoin’s price has also held up strongly while smaller cap crypto-assets rise higher, suggesting inflows into both
In addition to new money, it also seems that long-term investors continue to double down.
Hodlers Balance ATH — The amount of Bitcoin held by long-term investors set new all-time highs this week
- Addresses holding Bitcoin for over one year have historically been a bellwether for the progress in Bitcoin cycles
- Hodlers tend to increase their Bitcoin holdings through bear markets and beginning of bull markets, and decrease them near previous all-time highs
- With hodlers’ balance continuing to rise, it appears that investors in aggregate expect Bitcoin to push higher
In terms of size, it appears that recent buyers skew towards larger allocations.
Whales Reach Yearly Highs — The amount of Bitcoin held by addresses with over 1,000 BTC is at its highest in 2023
- Following the collapse of Alameda and Genesis, the amount of Bitcoin held by addresses with over 1k BTC plummeted
- Entities of this size have since been growing throughout 2023, reaching total holdings of 7.67M BTC (~$275B) this week
- The magnitude of these holdings suggests that large Bitcoin institutions are seeing higher demand and are in a strong position
American Institutional Demand — Futures markets suggest US entities have been some of the main players driving Bitcoin’s rally
- The difference between a futures’ contract price and the asset’s spot price is known as the basis. An futures contract with positive basis (a premium) is considered to be in contango, while one with negative basis (a discount) is in backwardation
- Tracking Bitcoin futures, we see that CME contracts have been trading at a higher premium compared to international exchanges, particularly in late October
- The high level of contango not only is indicative of the bullish sentiment from American institutions (which predominate in CME volumes), but also helps drive demand for spot Bitcoin as people execute the basis trade, profiting from the converging prices between futures and spot
- Last week, CME futures surpassed Binance in terms of open interest, further signaling the growing demand from American institutions to trade Bitcoin
Overall, on-chain data helps clarify the players driving crypto’s rally. There are signs of new money coming in, but also long-term investors continuing to accumulate. Bitcoin demand from institutions, particularly those from the US, also appears to be growing over the last month. Ultimately, although crypto was showing some early signs of getting overheated, the underlying demand is showing healthy signals.
