Traditional wisdom suggests that when large amounts of bitcoin go out of the stock market, the Hodgars put coins in their storage, probably forever. The reality is more complicated than that, and the Bitcoin leak in 2021 has much more to do with another important digital asset: stable coins.
But first, how we got here: The crypto industry is still not happy with FinCEN’s proposal to require cryptocurrency to collect data on both sides of any outbound transaction. Crypto-defenders now have a civil liberties group that stands by them in comments on the proposal. This made me think, how much money are we talking about?
The chart above shows the approximate notional amount of bitcoin expiring from exchange portfolios, summarized by month. The real number is probably higher. Remarkably, Coinbase takes on larger sizes than most exchanges to disguise its bitcoin addresses, and therefore the largest volume exchange available in the United States is almost certainly here.
However, $ 60 billion a month is nothing to sneeze at. No wonder regulators are paying attention to these flows.
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Much of the increase in outflows is due to the extraordinary run in bitcoin prices for the first quarter. This was a record first quarter for the orange coin. Historically, for whatever reason, the first quarter has been weak, with negative returns in five of the last seven years, according to CoinDesk Research. In 2021, bitcoin grew by 103% per quarter.
However, this is not the whole story. Another record was set last week: a one-day high-water brand in bitcoin-denominated outflows, with 1,365 BTC transferred from exchanges over a 24-hour period.
Some interpret these transfers ascending: bitcoiners move their bitcoin exchanges to a cold store. Crypto analyst Willy Woo calls these hits “Rick Astleys” because the British pop singer is the best single since 1987, “Never Gonna Give You Up”, aptly describing their feelings about bitcoins. But as I said on CoinDesk TV Everything about bitcoins show last Friday, it may be Stevie Wonders. So they are “part-time lovers”.
Here is what I mean by this: One of the main dynamics of the market over the last three years is the rise of stable coins. Tether (USDT), in particular, has replaced bitcoin as the dominant currency quote in crypto-altcoin trading. This means that when I want to use crypto to buy crypto on the stock exchange, I am much more likely to do so in tetra or, to a limited extent, a dollar coin (USDC), a fixed dollar stable coin of the Circle.
What we are looking at here is the volume of quotes, the volume of bitcoin markets and the first two stable coins for the four altcoins: ether, gimbal, chain and star lumens, on three exchanges included in TradeBlock’s bitcoin index XBX, plus Binance. So, this is a sample from the market, but significant. (TradeBlock is owned and operated by CoinDesk, and its XBX index is derived from the most liquid exchanges available to American investors, and I use Binance as a reliable proxy for the rest of the world.)
As the chart shows, by the beginning of 2020 there has been flipping, with stable coins already replacing bitcoin as the dominant cryptocurrency. Since then, tether and USDC have continued to eat up a growing share of the volume of the quote, replacing more and more bitcoins. Bitcoin quotes have now fallen to 12% from the two largest stable coins. So, the growing outflows of bitcoins reflect this trend, as well as everything else: while the volume is shifting from markets quoted in bitcoin to markets quoted in tether, the balance sheets of stock exchanges reflect this move.
In other words, when it comes to the popular story of bitcoin leaks as a bullish signal for hodler activity, I think it’s a story made up by Doobie Brothers: it’s “What a Fool Believes.” I tend to lean more towards Tina Turner on this indicator, wondering, “What should I do to love her?” My advice to investors would be to stay like Daryl Hall and John Oates and keep their Private Eyes watching this market closely.
After trading in a group of between $ 50,000 and $ 60,000 for more than a month, bitcoin seems more likely to make a breakthrough every day. Be wary of stories based on tea leaves in blockchain data.