Bitcoin’s price surged past the February 2023 highs of $25,200 following the release of U.S. inflation data that met market expectations. The looming uncertainty in the global banking system has bolstered Bitcoin’s attractiveness as a hedge, similar to gold, leading to an increased correlation between gold and Bitcoin since the beginning of the month.
Despite this positive sentiment, institutions have been net sellers of Bitcoin in 2023, a trend that raises concerns. Notably, large Bitcoin holders, known as whales, have not been actively participating in the ongoing price rally, indicating that retail investors are the main drivers behind the current uptrend. The disparity in investment behavior between whales and retail investors could potentially lead to a short-term price correction in Bitcoin.
Analyst Indicates Institutions Are Compelled to Sell Bitcoin
Data from CoinShares, which tracks institutional crypto asset flows, shows the largest two-week sell-off by investment funds since March 6. This selling pressure has reversed the earlier positive inflows for the year, resulting in a net year-to-date outflow of $177 million.
James Butterfill, the head of research at CoinShares, suggests that these outflows could be driven by the need for liquidity amid the current banking crisis, drawing parallels to the market reaction during the initial COVID-19 panic in March 2020. While there are concerns about forced sell-offs by institutions, on-chain analytics from Santiment indicate that major whale sell-offs are not currently observed, with Bitcoin addresses holding 10-10,000 BTC remaining relatively stable.
The absence of significant whale sell-offs is a positive sign for the current rally, but sustained price growth may require increased participation from whale buyers to prevent a downturn. The recent turmoil involving stablecoins like USD Coin (USDC) and Binance USD (BUSD) likely prompted some whales to shift away from stablecoins. However, the flow of stablecoins into Bitcoin and other cryptocurrencies is seen as favorable for prices.
Bitcoin miners, another key player in the ecosystem, have been steadily increasing their BTC holdings since the beginning of 2023, despite making some profit-taking transactions during recent price peaks.
Retail Investors Dominating Spot Exchanges Drive Price Action
Retail investors engaging in spot purchases are believed to be the primary force behind the current price rally. On-chain analyst Will Clemente notes that the uptrend seems driven by spot buying, as futures contracts and funding rates show less activity.
Addresses holding less than 10 BTC are accumulating Bitcoin at record levels, suggesting a broader distribution among retail investors and mitigating concerns about supply concentration among large holders. However, history shows that retail investors often struggle with market timing, underscoring the importance of whale investors in sustaining market confidence.
Technically, the BTC/USD chart indicates strength on a daily basis, with a breakout and consolidation above a widening wedge pattern. Yet, resistance levels between $28,000 and $30,000 from June 2022 pose a challenge for buyers. CME futures data suggest potential price pullbacks with unfilled gaps at $26,500 and $19,500, as these gaps are typically resolved by price movements towards the closing price to fill the void.
As traders await the upcoming U.S. Federal Reserve policy rate meeting on March 22, the market anticipates increased volatility and potential impact on Bitcoin prices. The outcome of the Fed’s announcement could trigger substantial market shifts, prompting more cautious actions by sophisticated investors.
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