10x Research: Where are the signals for Bitcoin’s upward breakthrough?

Original title: Bitcoin Stuck in This Range? Or a Breakout Looms?

Original author: Markus Thielen, Matrixport analyst
Original translation: Fu Ruo, Odaily Planet Daily

Market status and key variables

Despite the fact that Bitcoin prices are only 7% below their all-time highs, traders still complain that Bitcoin is stagnant. Large amounts of Bitcoin are being transferred out of exchanges, while stablecoin momentum is sending warning signals. Crypto market trading volume has fallen to $50 billion, and funding rates are only slightly positive, and trading interest is clearly low.

Federal Reserve policy and inflation data are seen as two key variables that have driven Bitcoin to a record high.

On June 5, the Bank of Canada may start a global rate cut cycle to provide reference for the Federal Reserve, and the US inflation data on June 12 needs to show a lower inflation rate of 3.3% for Bitcoin to rise.

The figure below shows the Bitcoin funding rate (left axis, white) versus the cryptocurrency trading volume (right axis, purple, in billions of US dollars):

Bitcoin transfer and exchange dynamics

The sharp decline in the balance of Bitcoin in exchanges shows that big players are moving Bitcoin out of exchanges to "hoard" Bitcoin in anticipation of price increases.

In May this year, a total of 88,000 Bitcoins were transferred out of exchanges, and currently there are 2.5 million remaining, a new low since March 2018. Exchange outflows began on May 15, coinciding with the quarter-end 13 F filing requirement for US registered investors managing more than $100 million. Coinbase accounted for a third of these outflows (29,000), with seven of the top ten exchanges showing outflows, and only Bitfinex seeing strong inflows (7,600). At the end of May, 50,000 BTC were moved out of exchanges. These data points are bullish, and the hashrate hitting an all-time high of 657m TH/s on May 27 (before falling slightly to 602m TH/s) suggests that some mining activity remains bullish.

Analysis of Miner and Large Investor Behavior

Starting from November 2023 (BTC approaching 40,000), the Bitcoin miner wallet balance gradually decreased from 1.835 million BTC to 1.806 million BTC until the Bitcoin halving on April 20, when the balance remained stable for several weeks.

However, the decline in balances has increased in the past two weeks as the reduction in block rewards forced miners to sell inventory to cover operating costs. Bitcoin miner wallets currently hold 1.804 million BTC. And miners are continuing to sell Bitcoin.

In May, whales (holding>10,000 BTC) increased their holdings by 164,000 BTC, the highest monthly increase since January 2018 (the peak of the third bull market). Whales (holding 1,000-10,000 BTC) sold 118,000 BTC, the most since December 2022 (near the low). Sharks (holding 100-1,000 BTC) sold heavily in February 2024 (165,000 BTC), but bought heavily in March 2024 (159,000 BTC). The accumulation of Bitcoin by giant whales and the movement of tokens from exchanges is bullish.

Stablecoin Issuance and Market Liquidity

Reviewing the distribution of 19.7 million circulating Bitcoins: 1.77 million may be lost (a relatively stable number since 2013), whales (3.12 million BTC, the highest level since November 2022), whales (4.8 million), sharks (3.87 million), fish (10-100 BTC, 2.57 million), crabs (1-10 BTC, 2.13 million) and shrimps (<1 BTC, 1.42 million). This shows that Bitcoin holders with at least 100 BTC (sharks) dominate the market, but whales (at least 1k BTC) are the largest category of holders.

With nearly $140 billion worth of stablecoins in issue, more than 50% of wallets hold more than $10 million, suggesting that large investors, rather than retail traders, are driving the stablecoin (or overall crypto) market. However, two days after the Bitcoin halving, when Runes transaction fees peaked, the stablecoin balance held by whales (holding>$10 million) fell from $76 billion to $72 billion.

Wallet holdings have stabilized and become less volatile. Thus, the peak in whale stablecoin holdings on April 22, 2024 could be a key turning point, indicating that large investors are either converting their stablecoins to crypto or fiat. However, new fiat-to-crypto inflows have stopped, which is worrisome as it has been a key driver of Bitcoin’s rally from $30,000 to $70,000.

The chart below shows Bitcoin (left axis, purple) versus 30-day stablecoin impulse (right axis, white, in billions of dollars):

Only $400 million of net stablecoin issuance has been disclosed in the past 30 days, which is worrying because the more positive stablecoin supply momentum has disappeared since Grayscale won its lawsuit against the SEC in September 2023.

Smaller wallets (holding less than $1 million) are still increasing their stablecoin holdings, either through new fiat-to-crypto conversions or, more likely, converting crypto holdings into stablecoins (taking profits or stopping losses).

Conclusion

In summary, while smaller wallets are still increasing their stablecoin holdings, whales are quietly becoming less active and converting their stablecoins into cryptocurrencies (such as BTC) or fiat (liquidation). Whale buying of Bitcoin coincided with the massive stablecoin minting in April/May. Minting is now paused and Bitcoin is being moved off exchanges.

This leaves macroeconomic momentum as the key variable. The market needs either a Fed rate cut (unlikely, but the June 5th Bank of Canada meeting could provide an early signal) or a lower inflation reading on June 12th (we think 3.3% is likely) that would cause Fed members to at least turn dovish. Otherwise, Bitcoin could be stuck in the $60,000 to $73,000 range.

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