Following months of unrelenting turbulence, the crypto industry has been on a tear in recent weeks, with the total market capitalization of the space recently surpassing $2 trillion for the first time since May.
In fact, $700 billion has entered the digital asset sector in the last 21 days alone, leading many to believe that more is on the way in the near term.
This bullish sentiment appears to be the result of two recent events: Ethereum’s successful London hard fork, which makes the network appear more scalable, and the introduction of the recent infrastructure bill by the United States Senate, which has tax implications for crypto businesses in America.
According to Kadan Stadelmann, a chief technological officer of blockchain solutions provider Komodo:
“Regardless of the legislative outcome, this debate is elevating cryptocurrency to the forefront of US policy and raising public awareness about blockchain technology. Another result is that if policy clarifications are formally adopted, traditional financial institutions will most likely increase their holdings of cryptocurrencies.”
An examination of some off-chain data
According to Stadelmann, Bitcoin (BTC) accumulation is currently taking place among whales as well as miners, with exchange outflows causing a supply shock, implying that prices may continue to rise in the near term. That said, he believes that while BTC may rise to around $50,000, if not higher, it will be difficult for the premier cryptocurrency to reclaim its all-time high of $65,000.
The recent London upgrade appears to be the primary driver of Ether’s (ETH) recent bullish development. Indeed, according to data released by crypto analytics firm Glassnode, there have been several spikes in the altcoin’s exchange outflow metrics, implying that an increasing number of people have continued to accumulate ETH off exchanges, according to Marie Tatibouet, chief marketing officer of cryptocurrency exchange Gate.io.
She also stated that the total value locked up in decentralized finance, or DeFi, contracts has surpassed $80 billion for the first time since the first quarter of 2021. Furthermore, the total number of ETH staked in the Beacon Chain has surpassed 6.5 million. “Overall, these are very positive signals that indicate that the market believes in Ethereum,” Tatibouet said.
HODL sentiment is high.
Bitcoin accumulation has continued behind the scenes, with the total Bitcoin supply owned by long-term holders recently reaching an all-time high of 82.68 percent. In contrast, the supply pool of short-term holders has continued to shrink, reaching around 20%. This appears to indicate that an increasing number of Bitcoin owners are looking to hold on to their crypto.
Glassnode’s analysis team found that whenever the short-term holder supply ratio falls below 20%, it is followed by a major supply squeeze — i.e., a supply shortage that, more often than not, helps to drive the underlying asset’s value higher.
Furthermore, for the first time since September 2020, the dominance of Bitcoin transactions exceeding $1 million increased by a factor of more than two, rising from 30% to 70% of total value transferred. In this regard, because most retail investors do not typically facilitate large-volume transactions, Glassnode believes that institutional investors may have been responsible for the increase in the $1 million–$10 million transaction group.
Whales have maintained their dominance.
According to crypto analytics firm Santiment, Bitcoin millionaires around the world — i.e., wallet addresses holding between 100 and 10,000 BTC — have yet to sell their coins for a quick profit. The total BTC held by these addresses is now 9.23 million, matching the previous all-time high set on July 28.
Furthermore, the net flow of Bitcoin on digital asset trading platforms to addresses that are most likely designated for storage has been impressive in recent times. Tens of thousands of BTC are moved daily, according to updates from analytics platforms like Whale Alert, indicating healthy transactional activity in the crypto ecosystem.
Yuriy Mazur, head of data analysis for CEX.IO Broker, a platform for cryptocurrency trading via contracts for difference, told us that this data suggests that most holders are optimistic about the market’s growth in the near term and are not planning to exit their positions, despite recent negative news. He continued, saying:
“With projections that Bitcoin will soar from its current price of around $45k to more than $70,000 by the end of the year, many investors are already looking forward to participating in this historic price rise.”
Institutional interest remains high.
According to the on-chain analytics service CryptoQuant, Bitcoin reserves on derivatives exchanges around the world have continued to fall to levels last seen before May, when the recent price correction had not yet occurred. In this regard, the company confirmed that as of August 10, derivatives reserves totaled 1.256 million BTC, the lowest level since May 11.
Nonetheless, funds appear to be flowing back into Grayscale Bitcoin Trust, as emerging data indicates that a growing list of traditional players has continued to add to their crypto coffers over the last several months. Furthermore, there is sufficient evidence to suggest that, even during the most intense phase of this year’s BTC bull run, derivatives balances rose in the opposite direction — a decreasing balance characterized only the very beginning of the run to $64,500.
The onslaught of negative news surrounding the crypto market, such as China’s miner route or the ongoing saga over the United States’ infrastructure bill, does not appear to have deterred most institutional entities in the least. This is evidenced by the fact that Bitcoin’s total exchange balance was around 2.44 million BTC earlier this week, a three-month low.
There was no major panic selling.
It is no secret that the 2018 market crash was fueled in large part by the initial coin offering mania, which saw hundreds of startups amass billions of dollars in capital only to flee quickly. When the bubble burst, the total market valuation of the entire industry dropped from $700 billion to $102 billion in less than 11 months, representing a loss of more than 85 percent.
On the other hand, the price rally in 2021 appears to have resulted from solid macroeconomic factors, fueled in large part by investors seeking monetary safe havens as a result of the monetary policies implemented by central banks around the world. To put things into perspective, global debt has continued to rise over the last year and a half, now totaling more than $281 trillion (approx. 355 percent of the global gross domestic product).
Finally, according to the Institute of International Finance, this borrowing will only increase in the short term — by at least $10 trillion by the end of 2021 — as COVID-19 variants continue to rear their ugly heads around the world.
With all of this data available, it appears that the crypto market’s ongoing positive momentum is being driven primarily by strong fundamentals as well as solid innovation.