The forecast for Bitcoin investors worldwide is growing increasingly turbulent as the digital currency’s value nudges closer to the critical threshold of $33,000.
A prevailing fear of a significant sell-off is gaining momentum, propelled by strategic maneuvers among regional trading entities and a flux in demand and supply in the crypto market.
Bitcoin’s delicate dance of demand and supply
The landscape of Bitcoin trading continues to evolve, driven by fluctuations in market sentiment and shifts in the focus of global investors.
The heightened activity was initially sparked by the United States Securities and Exchange Commission (SEC) tightening its grip on the top two cryptocurrency exchanges.
This regulatory pressure, however, has seen an unexpected turn of events, initiating a surge in Bitcoin’s value from $25,000 to over $31,000 – a yearly record.
Notably, American investors were the first to lead the rally, followed closely by their European counterparts and then Asian traders. This regional momentum has been tracked through the net flow of Bitcoin on leading exchanges, specifically, those recognized as primary players in the US and Asia.
Understanding the subtleties of these regional flows offers valuable insight. During the bullish market of 2020-2021, Bitcoin accumulation was robust, largely triggered by the fallout of the LUNA debacle and the FTX controversy.
However, there were deviations, particularly in the behavior of Binance, the world’s largest exchange, which showed increased inflows during market sell-off events.
This migration of investment could indicate a shift in investor confidence, moving from perceived high-risk platforms towards more stable options.
The behavior of exchanges based on their geographical location provides another intriguing perspective. Both offshore and onshore exchanges saw a significant accumulation during the period from November 2022 to January 2023, considered as the bottom discovery phase.
However, the trend took a dramatic turn following the LUNA fallout, and since then, offshore exchanges have recorded net inflows, whereas onshore exchanges are witnessing net outflows.
The shift in regional market sentiments can be evaluated using the recent lawsuit against BinanceUS and Coinbase as a trigger point. The market response was visible as exchange outflows, with offshore exchanges currently displaying a net outflow of around -37.7k BTC/month.
Meanwhile, the buying pressure in onshore exchanges has dwindled to -3.2k BTC/month.
Guarded optimism amidst market flux
The flow of wealth from investors to ‘HODLers’ has created a pattern of growing illiquidity that is integral to all Bitcoin bull markets. However, the key to sustained success lies in the new demand entering the market.
The momentum of supply, especially from highly active regions, is an effective way of tracking this demand.
On a more granular level, ‘Hot Supply’ represents the most liquid and active subset of the young supply. It is characterized by a velocity of one or higher, implying that each Bitcoin in this region changes hands more than once per day.
To put the scope of the Hot Supply into perspective, it represents between 3.5% to 11.3% of the total supply, which is a decisive factor in driving Bitcoin’s pricing process. The short-term holders (STH), who control the Hot Supply, seem to have taken a strategic pause.
Their cost basis remained stable around $26k last week, indicating a psychological shift away from the bearish mindset of 2022 and towards a view of break-even levels as an opportunity to build their position rather than an exit point.
This shift is pivotal, considering the STH cohort currently holds an average profit of 12% with the risk of market corrections likely to increase if the MVRV metric exceeds between 1.2 (~$33.2k) and 1.4 (~$38.7k).
The information in this article were gotten from a recent report by Glassnode.