Recent data indicated that mid-tier traders took profits before and during yesterday’s massive price drops for bitcoin and Ethereum. Furthermore, it disputed the assumptions that whales and institutional investors have disposed of their BTC holdings.
Mid-Level BTC Holders Took Profits Amid The Drop
Following the highly positive first days of 2020 in which bitcoin exploded above $30,000 to a new all-time high of nearly $35,000, the cryptocurrency retraced heavily yesterday. As CryptoPotato reported, BTC went from over $33,500 to an intraday low of beneath $28,000 (on Bitstamp) in hours.
Simultaneously, the second-largest cryptocurrency by market cap was flying to its new near 3-year high at $1,170 before it went through a similar sharp price correction to below $900.
According to information from the analytics company Santiment, the so-called “mid-tier holders” took this opportunity to collect short-term profits during these price developments. These are addresses containing between 10-1,000 bitcoins and 100-10,000 ETH.
As the graphs below demonstrate, the number of such BTC wallets had dropped by over 1,100 in the past week, while the ETH wallets with that amount had decreased by 523.
Santiment also refuted the claims that whales and institutional investors with massive BTC and ETH positions have started to dispose of their digital assets. In contrast, the company highlighted that BTC addresses with over 1,000 tokens and ETH wallets with 10,000 or more coins had increased by 51 and 17, respectively, in the past week.
Analysts Agree With The Profit-taking Theory
Jason Deane, an analyst at the cryptocurrency advisory firm Quantum Economics, supported the narrative mentioned above in a CNBC interview.
He outlined the growing demand from institutions towards bitcoin. Those included massive purchases from insurance giant MassMutual, hedge fund managers One River Asset Management and Ruffer Investment, and the Wall Street behemoth Guggenheim Partners.
Consequently, he believes that “any correction will be short-lived,” given the “current sentiment and appetite for bitcoin.”
“The most likely explanation for the pullback is short term profit taking by traders, rather than long-term investors.” – he concluded.
Bitpanda’s CEO, Eric Demuth, added that “there’s no denying that bitcoin has proven itself as an established and top-performing asset. Bitcoin’s value grew over 300% last year as more institutional investors took that leap to embrace digital currencies.”
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Bitcoin prices slipped lower Tuesday but maintained a strong foothold near critical support levels in the $30,000-31,000 range as traders awaited the outcome of Georgia’s runoff elections.
The flagship cryptocurrency slipped 0.75 percent ahead of the New York opening bell, wobbling between two extreme levels wherein $32,890 was intraday high, and $29,891 was intraday low. Most recently, it was trading for around $31,900, suggesting that traders remain in a short-term bias conflict.
Bitcoin is trading between gains and losses ahead of the Georgia elections. Source: BTCUSD on TradingView.com
So it appears, investors are closely monitoring the two electoral races in Georgia. If Democrats win both seats, it will make it simpler for President-elect Joe Biden to pass additional fiscal stimulus without any political resistance from Republicans.
More fiat liquidity expects to push the US dollar lower against strong and emerging currencies. Meanwhile, it could also raise Bitcoin’s appeal as a safe-haven asset, given the cryptocurrency’s 300 percent bull run in the last 12 months—under similar circumstances.
More bullish outlooks could come surface if Mr. Biden increases corporate taxes and raise regulations. That would leave investors with corrective stocks and limited hedging alternatives—thanks to already-depreciating bond yields and the US dollar value. Bitcoin expects to benefit from such uncertainty, as well.
However, a Republican win would create a standoff over additional stimulus proposals. At best, that would slow down Bitcoin’s uptrend growth, especially as it prepares for a run-up towards $35,000 over increasing institutional interest.
Bitcoin 4H Chart
The technical outlook on the Bitcoin four-hour (4H) chart favors bulls. While the cryptocurrency holds $30,000 as its primary support level, it is also trading inside what appears to be a Bull Flag pattern. It serves as a bullish continuation indicator.
Bitcoin consolidates lower to prepare for another leg upward. Source: BTCUSD on TradingView.com
Based on the technical indicator, the BTC/USD exchange rate could break out of the range to the upside. The height of the breakout would be as much as the height of the flagpole formed before the consolidation channel. It is around $5,000-long.
That puts BTC/USD en route to $35,000-36,000 in the short-term.
Conversely, if an extreme corrective sentiment invalidates the Bull Flag, the pair risks falling to its last support range of $26,500-27,500. The dovish FOMC minutes coming out on Wednesday should avoid that scenario nonetheless.
Singapore investment firm Three Arrows Capital is probably one of the institutional whales responsible for the massive surge in the price of Bitcoin (BTC) since late 2020 judging by the company’s ownership of Grayscale Bitcoin Trust (GBTC) shares. Bitcoin’s appeal among institutional investors continues to grow with many companies adopting the largest crypto by market capitalization as a suitable treasury reserve asset.
Grayscale Holds Over 6 Percent of GBTC Shares
According to a document filed with the U.S. Securities and Exchange Commission (SEC), Three Arrows owns 39,969 BTC worth about $1.24 billion based on the prevailing GBTC premium. This Bitcoin ownership figure amounts to about 6.1% of the total GBTC shares.
As of press time, the total GBTC holdings stand at over 607,000 BTC placing Three Arrows as the largest holder in the Grayscale BTC Trust portfolio. For Three Arrows Capital co-founder Kyle Davies, the company plans to continue working with Grayscale to acquire more investment positions in Bitcoin and cryptocurrencies.
Indeed, Grayscale which is the largest crypto asset fund manager has been at the heart of massive Bitcoin accumulation throughout the latter part of 2020. The company has also secured SEC reporting status for both its Bitcoin and Ether (ETH) Trusts.
Apart from Grayscale, another fund manager, Bitwise, has also seen its holdings grow over the course of the last quarter of 2020. In a press release issued on Monday (Jan 4. 2021), Bitwise revealed that its assets under management (AUM) surpassed $500 million.
This landmark is despite the firm liquidating its XRP position back in December. At the time, the company explained its decision to dispose of its XRP holdings as being the result of the SEC’s enforcement action against Ripple.
Bitcoin Bull Case Continues into 2021
Meanwhile, Bitcoin’s bullish price performance has continued into 2021 with the BTC price topping out at about $34,000. However, Bitcoin has seen a slight retrace, filling CME futures gaps at the $27,000 and $29,000 price bands.
This over 10% retrace contributed to about a $72 billion wipeout from the total crypto market capitalization. Before the decline, the cryptocurrency market size seemed set to cross the $1 trillion milestone.
As of press time, ETH and Cardano (ADA) are the only top-10 “coins” still showing a positive 24-hour price performance. However, Ethereum has also seen its own retrace down for a three year high above $1,100.