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Author | Hash Party - LucyCheng Article word count: about 4000 words
Reading time: about 5 minutes
1. Overview Since April, Bitcoin has gradually recovered from the cryptocurrency market crash on March 12, and the price trend has re-entered the upward channel, with a monthly increase of more than 38 percentage points. After the third halving, Bitcoin's rise has not slowed down, and it has even touched the $10,000 mark several times. Judging from the market data, the current sentiment in the market is relatively optimistic. However, what does not match the price increase is that the amount of coins held by exchanges is continuing to flow out in large quantities. In this article, Hash Party will analyze the trend of Bitcoin withdrawn from exchanges, so as to observe the changes in the current market's capital trend. 2. Market sentiment is relatively optimistic, but the Bitcoin balance on exchanges continues to decline Affected by the spread of the epidemic, many parts of the world fell into a "technical bear market" on March 12, 2020 Beijing time. The US S&P index fell by more than 7%, triggering the second circuit breaker of the week, and the three major stock indexes opened down by more than 5%. From the evening of the same day to the morning of the 13th, the price of Bitcoin also fell like a waterfall, breaking through the 7,000, 6,000 and 5,000 US dollar mark, and once reached 4,748 US dollars, a new low since April 2019 (data source: Coinmarketcap). But soon, with the advent of the third Bitcoin mining reward halving, its price began to rise slowly from March 19, and rose to around $8,607 on May 12, the eve of the halving. The upward trend did not slow down after the halving, and it tested the $10,000 mark several times during the week. Bitcoin price trend in the past three months (data source: Glassnode) At the same time, other market data also showed a relatively optimistic sentiment. The SOPR ratio (Expenditure/Output Profit Ratio), an indicator that can be used to measure people's emotions and behaviors, was significantly lower than 1 during March and April, indicating that the market as a whole was not profitable. By the end of April, the market gradually recovered from the crash, and the SOPR ratio began to rise, and currently remains above 1. SOPR ratio developed by Renato Shirakashi (data source: Glassnode) On the other hand, in the futures market, the perpetual funding rate (PFR) also rebounded to near 0 after the market rebounded. Since the beginning of May, the perpetual funding rate has continued to rise, and it has basically remained at a positive level after the Bitcoin halving, which means that current market investors tend to be bullish. Bitcoin perpetual contract funding rate (data source: Glassnode) Judging from market performance, after the end of April, the market has gradually recovered from the market crash on March 12; at the same time, affected by the news of Bitcoin halving, the current sentiment in the market is relatively positive, and various indicators show a relatively optimistic situation. However, unlike the previous situation where the amount of coins in the exchange would increase relatively as the price rose, the amount of Bitcoin held in the exchange continued to decrease during this rapid price rebound. 3. More than 300,000 BTC were withdrawn from exchanges, and major exchanges lost an average of about 25% of Bitcoin Since Black Thursday on March 12, the amount of Bitcoin held by the top exchanges has fallen precipitously; although the loss has slowed down after the network block reward was halved, it still shows a downward trend overall. As of May 31, the total amount of Bitcoin stored in exchanges has dropped to 2,320,021, with a total loss of more than 300,000 BTC, equivalent to about US$2.9 billion. Bitcoin inventory on exchanges (data source: Glassnode) According to data from ViewBase, the vast majority of funds withdrawn from exchanges in recent months came from BitMEX, OKEX, Huobi, Binance and Bitfinex; since March, the above exchanges have lost about 50,000 bitcoins each, equivalent to about a quarter of the platform's bitcoin balance. Bitcoin holdings of various exchanges in the first half of 2020 (data source: ViewBase) OKEX, Binance, Huobi and BitMEX are the futures trading platforms with the highest trading volume. The amount of Bitcoin deposited into OKEX and Binance increased significantly in March. On March 13 alone, more than 20,000 Bitcoins were transferred to OKEX. However, in May, large withdrawals from the platform began to increase, with a total of more than 50,000 Bitcoins withdrawn from OKEX and Binance within the month. Huobi, whose daily futures trading volume is comparable to that of OKEX, has not lost as much as the previous two, but its Bitcoin holdings also showed signs of decline in April and May. Large-amount transfers in and out of various exchanges in the first half of the year (data source: Whale Alert) Similar to the above exchanges, Bitfinex, which focuses on the spot market, also saw a significant capital withdrawal in May. However, the difference is that its Bitcoin holdings began to flow out in March. As shown in the above figure, from March to May, large withdrawal transactions related to Bitfinex were frequent, with an average of more than 30,000 BTC withdrawn from the platform every month. 4. Non-zero addresses increased significantly, and retail investors entered the market to hoard coins Although Coinbase, the exchange with the largest current Bitcoin holdings, also saw a large number of large withdrawal transactions from March to May, the exchange's overall Bitcoin holdings remained basically unchanged, maintaining at around 970,000. The large outflow did not have much impact on the total balance of Bitcoin on the platform, indicating that retail investors on Coinbase have made a large number of small deposits in the past six months, thus filling the gap of capital outflow from some large investors. According to data from the Coinbase website, in March, due to the sharp drop in prices, the number of new user registrations on the platform increased by two times compared with the average of the past 12 months, while the number of trading users and total trading volume also increased by three times and six times respectively. It's not just Coinbase. According to data from TradeBlock, Binance's spot trading volume hit a record high on April 29, with a trading volume of $11 billion in 24 hours, breaking the record in early 2018. OTC platform provider Simplex and Square CEO Jack Dorsey also recently stated that they have seen unusually active investment by retail investors on their platforms. The growth of non-zero addresses in the Bitcoin network (data source: Glassnode) On the other hand, on-chain data also shows signs of retail investors entering the market. According to data from Glassnode, the number of non-zero addresses in the network has been on an upward trend before the Bitcoin halving, growing steadily at a rate of about 2% per month; after the halving, the growth rate of the number of non-zero addresses has gradually slowed down, and even showed signs of a slight decline. Distribution of Bitcoin non-zero addresses (data source: Glassnode) Following the rising trend of non-zero addresses, the number of addresses with Bitcoin balances greater than 0.01 BTC, 0.1 BTC, and 1 BTC in the network also increased steadily from March to May. However, from the data in the above figure, while the number of addresses in each balance range has increased, the proportion of addresses with a balance of less than 0.1 BTC in non-zero addresses has continued to decline slightly. This indirectly shows that a large number of retail investors tend to accumulate Bitcoin during this period. Changes in active addresses in the network in May 2020 (data source: Glassnode) However, as the Bitcoin halving period approaches, this behavior of retail investors rushing in to accumulate Bitcoin gradually disappears, and investors turn to hoarding coins and waiting. According to data from Glassnode, after the halving, the growth rate of small addresses with a balance greater than 1 BTC began to slow down, and the activity on the chain also showed a downward trend. At the same time, the daily trading volume of Bitcoin in the market also declined. The average daily trading volume after the halving that month was about 27 percentage points lower than the average daily trading volume before the halving. Changes in Bitcoin price and trading volume in May 2020 (data source: CryptoCompare)
5. Institutional investors support Bitcoin and buy more than half of the newly mined Bitcoin Different from retail investors who flocked to exchanges to hoard coins and wait and see, large holders of coins continued to hold Bitcoin after the halving. If addresses holding more than 1,000 BTC are called whale addresses, the total amount of coins held by whale addresses increased by more than 21,000 coins in less than two weeks from May 1 to the eve of Bitcoin halving. At the same time, the number of large addresses in the network also increased linearly; and the growth rate remained unchanged in the week after the halving, and only fell slightly on May 15. Increase and decrease of addresses with balance greater than 1,000 BTC in 2020 (data source: Glassnode) Among all whale addresses, Grayscale Bitcoin Trust under the US Digital Currency Group and Cash App under Square are the largest "open" buyers. According to a report by cryptocurrency media Zycrypto, Grayscale and Cash App purchased a total of 52.56% of the total amount of newly mined Bitcoin in the first quarter of 2020. Cash App is a multi-functional transfer payment software owned by Square, which is headquartered in San Francisco. The platform purchases about 8% of the new supply of Bitcoin every quarter; however, according to data analysis by cryptocurrency trader Alistair Milne, Cash App purchased 23.15% of the total newly mined Bitcoin in Q1 2020. While Cash App is buying a large amount of Bitcoin, the platform's sales volume is also growing. It sold at least 18% of the total newly mined Bitcoin in the first quarter. It is also worth mentioning that, seemingly in order to meet user needs, the platform has recently quietly increased the weekly purchase limit of Bitcoin (source: CoinGape). On the other hand, according to the data from Grayscale's first quarter report in 2020, the Bitcoin Trust Fund added $389 million in new investments during this period, doubling from $1.94 in the fourth quarter of 2019, setting a record for the best quarter on record. After the Bitcoin halving, Grayscale continued to significantly increase its Bitcoin holdings, buying more than 18,910 BTC, which is 150% of the total amount of new Bitcoin produced after the halving. Not only that, Grayscale also purchased about 50% of the newly mined Ethereum in 2020. More importantly, this is only one of the investment institutions that has been publicly disclosed. There are still many institutions in the field that have not yet disclosed relevant data. According to Grayscale data, more than 90% of new capital inflows in recent months have come from investment institutions. "More and more institutions are interested, whether it is the halving of Bitcoin or the government's quantitative easing. Considering the unprecedented fiscal and monetary global stimulus, it is normal for institutional investors to be interested," said Eric Ervin, CEO of Blockforce Capital, an asset management company in the crypto field. Chicago Mercantile Exchange Bitcoin futures open interest (data source: Skew) Normally, the open interest of the Chicago Mercantile Exchange (CME) is regarded as one of the references for institutional participation in the Bitcoin market. The surge in CME Bitcoin futures positions since March and the continued surge since then also indirectly confirm the above statement, indicating that institutional investors have been closely following the Bitcoin market in recent months. 6. The stock of top exchanges is transferred, and large amounts of funds mainly flow to Coinbase According to PANews statistics, whale addresses frequently transfer large amounts of Bitcoin out of exchanges and between exchanges. Since April, Coinbase has received a huge amount of large deposit transactions from other exchanges, of which OKEX and Binance have the largest amount of transfers; and large transactions from OKEX accounted for 50% of Coinbase's large deposit transactions in May. Similar to this are the large transfer tracks of Bitcoin from Huobi to Binance and from OKEX to Binance, and similarly, half of Binance's large deposit transactions since May also came from OKEX. Recent large transfers between exchanges (Source: PANews, Chain.info) The flow of funds from domestic exchanges to compliant exchanges in the United States is, on the one hand, due to security considerations of large investors, and on the other hand, it is a natural manifestation of chips flowing from cold markets to hot markets. Judging from the influx of large transfer transactions into Coinbase and the above-mentioned retail investors entering the market, American investors are more interested in Bitcoin before and after the Bitcoin halving. USDT price trend (data source: Kraken) The reason for this phenomenon may also be related to the recent serious negative premium of USDT. As shown in the above figure, since the cryptocurrency market plummeted on March 12, the over-the-counter premium of USDT has continued to soar, and once the premium was as high as 8%; then it began to decline continuously, and the premium rate only dropped to zero again on May 6. Since then, USDT has always had a slight negative premium phenomenon. This continuous negative premium situation, to some extent, has given overseas big players the opportunity to exchange Bitcoin for low-priced chips. In the current market, USD and USDT are the two main settlement units for Bitcoin. The exchange that uses USD for settlement is mainly Coinbase in the United States, while other large exchanges including Binance, Huobi, OKEX, etc. usually settle in USDT. Overseas institutions can take advantage of the negative premium of USDT in the market, use USD to exchange USDT, and recharge it to domestic exchanges to absorb a large amount of Bitcoin at a relatively low price.
VII. Conclusion The Hash Party believes that the third halving of Bitcoin has brought a lot of confidence to the market. Out of anticipation for the "halving market", retail investors and institutional investors have flocked into the market in recent months and increased their holdings of Bitcoin. However, unlike institutional investors who started to invest in Bitcoin in the first quarter of 2020, retail investors are more cautious in their optimism and tend to hold their coins and wait and see before and after the block reward halving. As institutional investors continue to increase their Bitcoin holdings, no retail investors have entered the market to fill the gap of large withdrawals, resulting in a continuous loss of Bitcoin from exchanges.
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