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Who's buying and selling bitcoin?

A look at the major upcoming sources of technical supply and demand pressure for bitcoin before the reward halving in April 2024

May 19, 2023

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At a glance

This week we look at some of the major upcoming sources of technical supply and demand pressure for bitcoin in the months ahead

Key takeaways

  • This includes potential bitcoin selling associated with the Mt. Gox rehabilitation plan, the suspension of crypto-related operations at Argentinian fintech firm Uala as well as other sources.
  • On the demand side, Tether has recently announced that it will accumulate bitcoin on a monthly basis for its reserves, using 15% of its net realized operating profits from investments.

Written by

  • David Duong, CFA, Head of Institutional Research

Market view

There are several important technical supply vs demand factors that may influence bitcoin performance in the next few months, ahead of the rewards halving event in April 2024:

Mt. Gox (141,686 BTC). One of the most well telegraphed sources of pressure in the months ahead may be the bitcoin that’s due to be distributed to creditors as part of the Mt. Gox rehabilitation plan. Disbursements are supposed to be made by October 31 (though the deadline may be extended), but bitcoin selling could take place before that to raise the cash needed for settlements. The general framework is that the first JPY200k (~US$1440) of each creditor’s claim will be paid in cash followed by a mix of around 70%/30% token vs cash for the remaining balance – unless a creditor has explicitly requested a different split (e.g. 100% bitcoin or 100% cash). Incidentally, the two largest creditors representing around 20% of all Mt. Gox claims have also elected to be paid in mostly bitcoin. Note that we do not know the current number of available creditors as an unspecified number have sold their claims to third parties, but the Mt. Gox collapse had initially affected around 24,000 creditors. That puts the potential upper limit of forced bitcoin selling near an estimate of 35k BTC. Currently, the Mt. Gox trustee is sitting on 137,891 BTC, a balance that has remained constant since May 2018.

Uala. The Central Bank of Argentina (BCRA) issued a regulatory decree on May 4 that prevents payment service providers (that offer payment accounts) in its country from carrying out crypto related operations for their clients. This is forcing around 250-300k customers of one fintech firm – Uala – to liquidate their crypto asset holdings (mainly BTC and ETH) within 30 days. Note that digital assets will have to be sold (to be settled in ARS) as the company doesn’t allow their digital wallets to transfer crypto off the platform – ruling out the possibility of self-custody. Their platform had required a minimum investment of ARS250 (~$1.08) per user. We do not know the total amount of bitcoin that has been or may need to be sold.

Tether. Stablecoin Tether (USDT) announced that it would start accumulating bitcoin in its reserves on a monthly basis using 15% of its net realized operating profits from investments (i.e. not including asset appreciation). Given that Tether increased its net profit by $1.5B in the first quarter, this would presumably translate into $222.3M in bitcoin purchases (equivalent to 8,234 BTC) in the first tranche of buying, based on the data from its 1Q23 Assurance Report. The attestation also indicates that bitcoin comprised $1.5B or 1.8% of its consolidated reserves as of March 31, contributing to excess reserves of $2.4B or a 3.1% capital ratio on its $79.4B outstanding liabilities. This is up from a capital ratio of 1.5% in 4Q22.

Screenshot 2023-05-18 at 9.50.58 PM

Please be aware that the list provided above is not exhaustive, and there could be additional factors or sources that may contribute to bitcoin market activity through year-end.

Crypto & Traditional Overview

(as of 4pm EDT, May 18)

Asset

Price

Mkt Cap

24 hour change

7 day change

BTC correlation

BTC

$26,623

$515B

-2.6%

-1.44%

100%

GBTC

$14.37

$9.97B 

-4.2% 

-8.1% 

92%

ETH

$1,786

$214B

-2.2% 

-0.54%

88%

Gold (Spot)

$1,957

-

-1.21% 

-3.8% 

32%

S&P 500

4,177

-

+0.45% 

+1.43% 

19%

USDT

$1

$83B

-

-

-

USDC

$1

$29.53B

-

-

-

Coinbase Exchange & CES Insights

BTC and ETH continued to be range bound this week as neither was able to catch a sustained bid, even as traditional markets rallied on hopes for a debt ceiling deal. Traders are puzzled, in particular, by ETH’s price action as it hasn’t been able to follow the token’s solid fundamental progress. The token’s staking rate continues to climb and the activation queue is many times larger than the exit queue. Some are seeing the divergence between price and fundamentals as an opportunity to build or increase positions. 

Filecoin (FIL) came under pressure after Grayscale said that it received a comment letter from the SEC stating its view that FIL meets the definition of a security. Other altcoins traded lower in sympathy as traders reduced any part of their portfolios that could have regulatory headline risk.

Screenshot 2023-05-18 at 9.54.22 PM
Screenshot 2023-05-18 at 9.54.38 PM

Bitcoin technical analysis

The technical picture in BTC looks interesting as many market observers have been looking at a potential asymmetric head and shoulders (H/S) on the daily chart (see below). While BTC has been relatively well supported by the 100 day moving average (DMA) over the last week, it has been trending sideways and price action was rather lackluster. Most recently BTC was retesting the neckline of the H/S pattern around $27,200. If BTC does get rejected at this level, it should bring the lower bitcoin range back into play with the textbook H/S target around $24,000.

Since the market rally in mid January this year, the 100DMA has been a formidable support and has functioned as a springboard for BTC in early March when it tested the $20,000 level amid the temporary USDC depeg. In this context, monitoring the price action over the next days will be critical and could inform the price action over the short term.

Screenshot 2023-05-18 at 9.57.51 PM

Financing Rates

5/18/23

TradFi

CeFi Min

CeFi Max

DeFi

Overnight

5.00%

4.25%

7.50%

2.63%

USD - 1m

5.25%

4.50%

7.75%

USD - 6m

5.50%

5.00%

8.00%

BTC

3.00%

6.00%

ETH

3.00%

7.00%

2.16%

Notable Crypto News

Institutional

  • Ripple acquires institutional crypto custody firm Metaco for $250 million (Ledger Insights)
  • Bitcoin services startup River Financial secures $35 million from Peter Thiel, others (The Block)

Regulation

  • Judge Denies Motion to Seal Hinman Documents in Ripple SEC Case (Decrypt)
  • Fleeing U.S. Crypto Firms ‘Welcome,’ French Regulator Says (Coindesk)

General

  • Tether to invest up to 15% of its profits in bitcoin (The Block)
  • Ledger defends crypto wallet recovery tool against hostile reaction from security experts (The Block)

Coinbase

  • Singaporeans Embrace Crypto: Coinbase Launches USDC Trading with Local Insights and No Fees (Coinbase Blog)

View From Around the World

Europe

According to a House of Commons Committee report (and as described by CoinTelegraph), the “U.K. Treasury Committee has ‘strongly recommended’ regulating retail crypto trading and investment activity as gambling.” The report says the Committee is concerned about ‘consumer speculation in unbacked cryptoassets such as Bitcoin and Ether’ and stated that ‘unbacked cryptoassets have no intrinsic value, and their price volatility exposes consumers to the potential for substantial gains or losses, while serving no useful social purpose’. 

However, the report did also “recognise the potential for some crypto assets and their underlying technology to bring benefits to financial services and markets,” and called for an “effective regulatory framework to support these developments in the U.K. while mitigating some of the risks associated with crypto assets.” (CoinTelegraph)

Asia

The Supreme People's Procuratorate of the People's Republic of China, which CoinDesk refers to as “China's highest national agency responsible for legal prosecution,” has published its latest guidelines for the treatment of NFTs. The report stated that NFT “digital collections ‘share the attributes of virtual assets’ which are banned” in China and are likely to cause “financial risks, management risks, network security risks, etc.” (CoinDesk)

The Week Ahead

May 22

May 23

May 24

May 25

May 26

Notable Macro

UK CPI

US GDP

US Core PCE

U. of Mich. Sentiment

Notable Earnings

NVIDIA Corp

Costco 

Crypto

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