ETFs
If Bitcoin ETFs Buy, Who Sells? Analyst responses
Bitcoin struggled even though spot exchange-traded funds (ETFs) were purchased. Here’s why, according to this analyst.
Bitcoin recently saw a surge in “Paper BTC”
In a new thread on X, analyst Willy Woo explained why BTC has seen bearish momentum recently despite buying pressure from spot ETFs and institutional entities.
First, the analyst explained a source of spot selling pressure: the long-term holders (LTH). LTHs refer to market HODLers, who tend to keep their coins inactive for long periods of time.
These investors rarely sell, and the timing of their participation in selling seems to have followed a pattern throughout history. Below is a chart that shows the data for the Days of Parts Destroyed (CDD) metric that reveals this trend.
The value of the indicator appears to have seen a large spike just a while ago | Source: @woonomic on X
CDD keeps track of the number of coins investors move on the blockchain daily and compares it to the age of said coins. This means that when CDD peaks, many dormant coins have just broken their silence.
As the chart shows, Bitcoin CDD saw a huge spike earlier in the year when the price of the asset hit a new all-time high (ATH). Naturally, this suggests that LTHs potentially participated in a lot of selling during this rally.
It is also evident from the chart that similar spikes in the indicator also occurred amid the 2017 and 2021 bull runs. Thus, this latest LTH sell-off is not abnormal compared to what has been observed historically.
The other culprit for the asset’s recent slowdown could be paper Bitcoin. “BTC paper” essentially refers to derivatives products that do not involve the investor owning actual cryptocurrency tokens.
As the analyst notes:
BTC used to grow exponentially because the only sellers were a trickle of OGs and an even smaller amount of miners with their newly mined coins. Today, BTC paper magic is what you want to watch.
The chart below shows Bitcoin inventory on exchanges in recent years.
Looks like the value of the total inventory has slightly increased recently | Source: @woonomic on X
As seen in the chart above, the asset’s spot inventory has only shown phases of downtrends and sideways over the past few years, meaning exchanges have not received any deposits net significant.
However, both spot and paper BTC inventory saw an increase during the 2022 bear market. This increase implied that paper BTC was being minted quickly, as spot inventory was only consolidating during the same period . Woo notes that this suggests that BTC paper dictated the bear market.
The analyst marked in the chart the cases where BTC paper rose during the current bull market. It seems that every time BTC paper rises, the rally slows down.
BTC paper inventory has increased again recently, which may explain why Bitcoin has not been able to establish bullish momentum.
BTC Price
Bitcoin recovered above the $66,000 mark over the weekend, but the asset pulled back today as its price fell to $65,300.
The price of the coin seems to have slid down over the last few days | Source: BTCUSD on TradingView
Featured image of Dall-E, woocharts.com, chart from TradingView.com