Lawmakers and regulators’ increasing scrutiny of crypto markets,
including the debate over the U.S. infrastructure bill’s crypto tax
reporting provision, may be spooking retail investors but not institutional
ones, recent blockchain data from Glassnode indicates.
These larger investors, as represented by large-value dollar
transactions, fueled Bitcoin’s nearly 20% price gains since last week, the
Berlin-based blockchain data firm found. A number of analysts say the trend
shows that these organizations are focusing more on the cryptocurrency’s upside
than potential obstacles.
“Investors are looking to the positives around regulation rather than the negative,” said Joel Kruger, cryptocurrency strategist at institutional crypto exchange LMAX Digital, noting “the fact that the U.S. government is listening and is aware that there is a provision around crypto in the infrastructure bill that needs more clarification.”
Bitcoin’s on-chain transaction volume with values of at least $1 million
has risen 10% since the beginning of August, and accounts for nearly 70% of the
total value transferred.
This blockchain metric represents rising institutional activities on the
Bitcoin network since “retail investors rarely move transactions [with values
of at least $1 million] on a scale to create such dominance,” said Check Mate,
a blockchain analyst at Glassnode.
“The rising dominance also correlates with [massive] Coinbase exchange outflows since December 2020, which we also assign to likely US institutions,” he added.
Meanwhile, small-size transactions have declined as a percentage of the
overall market, as shown by the chart below. Transactions valued less than $1
million have dropped to around 30-40% of market dominance from 70% since July
2020.
Institutional investors’ recent bullishness comes as the crypto market
monitors intense political and regulatory developments worldwide, including a
hotly debated $28 billion tax reporting provision to the $1 trillion
infrastructure bill in the U.S. and an ongoing crackdown in Europe and other
regions against Binance, the world’s biggest crypto exchange by trading
volume.
Despite the potential for greater regulatory oversight, institutional
investors are optimistic about bitcoin’s future, analysts and industry experts
say.
“In general, institutions would welcome regulation that is clear and fair,” said Andrew Tu, an executive at quantitative trading firm Efficient Frontier. “The recent price increase over the last week…has shown that the market does not react strongly to concerns over regulation, as opposed to actual legislation passing.”
In the latest infrastructure bill development on Monday, U.S. Sen.
Richard Shelby (R-Ala.) filed an objection to a compromise amendment to the
crypto tax reporting provision. The amendment would have exempted crypto
transaction validators from a broadened definition of “broker.”
Kruger said that increased regulation helps validate the industry.
“This means the industry is getting recognized and this ultimately helps with acceptance and adoption,” Kruger said.
Others also said that the crypto market has become more used to news
coming from regulators, as the industry matures.
“The crypto market is very used to regulatory concerns, especially the
crypto OG hodlers (long-time holders) who have seen multiple cycles of
regulatory uncertainty,” Tu said.
Indeed, on a 14-day median basis, the average number of days each BTC
transacted remained dormant or unmoved, has risen slightly to around 10 days
from seven days, according to Glassnode, meaning that some bitcoin “old hands are not taking exit
liquidity at this stage.”
Market fundamentals turn stronger, healthier
Instead of focusing on regulatory uncertainties, institutional investors
have highlighted bitcoin’s strengthening market fundamentals as a justification
for their optimism.
“The regulatory concerns don’t impact bitcoin here as much as other cryptocurrencies, and the sentiment behind bitcoin has been showing signs of turning for a couple of weeks now,” said Noelle Acheson, head of Market Insights at Genesis. (Genesis is owned by CoinDesk parent company Digital Currency Group.)
On the supply side, bitcoin’s illiquid supply, or the balance held by
illiquid entities, reached a record high recently, meaning that the oldest
cryptocurrency has a weakness in supply.
The perpetual derivatives market’s funding rates have turned positive
again after they went negative for most of June and July.
Calculated every eight hours, the funding rate refers to the cost of
holding long/short positions in the bitcoin perpetuals (futures with no expiry)
market. The metric is used by exchanges offering perpetuals to balance the
market and guide perpetual prices toward the spot price.
A positive funding rate means longs are paying shorts to keep the
position open, and the market is skewed bullish. Meanwhile, a negative funding
rate implies a bearish market positioning.
Bitcoin’s put-call open position ratio also recently dropped to the lowest level this year on increased activity in calls, or bullish bets.
0 Comments