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Short-Term BTC Holders, Stablecoin Supplies Could Indicate Cryptos' Future Price Direction
The two data points may show whether bitcoin moves higher or declines further in the aftermath of the U.S. central bank's 25 basis point rate increase Wednesday.
Updated Mar 23, 2023, 3:15 p.m. Published Mar 22, 2023, 10:35 p.m.
To wide expectations, the Federal Open Market Committee (FOMC) raised interest rates by 25 basis points.
Yet, two crypto indicators – stablecoin supply and the profitability of bitcoin held by investors with short-term horizons – will likely have greater impact for investors than the decision.
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A full 97.5% of bitcoin circulating supply held by short-term investors is now in profit, as the current price exceeds the average cost basis.
“Short term” means bitcoin that was acquired less than 155 days ago, and often includes participants who are newer to the market or more apt to trade in and out of positions quickly.
A full 98% of short-term holders sitting in profit on the day of the FOMC rate decision means that if enough people view Federal Reserve Chair Jerome Powell’s comments as bearish could result in additional selling pressure.
But a more bullish interpretation of his remarks could lead to short-term holders holding their positions and ultimately moving into the long-term holder (155 days or more) cohort. Investors holding bitcoin signals that they believe the price will increase.
The total supply held by long-term bitcoin holders has increased 5% over the past year.
As long-term holders are less likely to spend bitcoin, increases in this group can serve as a supportive base of relatively illiquid supply, undergirding bitcoin’s price.
Still, for that to take hold a stablecoin supply shift would be helpful as well.
The aggregate supply net position change of the four top stablecoins has steadily contracted since April 2022. Stablecoins serve as the mechanism by which a large portion of digital assets like bitcoin and ether are purchased.
An expansion of stablecoin supply indicates an increase in capital available for deployment. A contraction indicates the opposite. For investors with a bullish view on BTC, the former occurring would be the more attractive development.
As capital markets continue to digest the rate decision and subsequent FOMC commentary, monitoring short-term holders to see whether BTC prices sell off will be important. Additionally, tracking the supply of stablecoins will give clues to the extent that BTC may move higher.
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Proposed ‘AfterDark’ Bitcoin ETF Would Skip U.S. Trading Hours
The fund would hold bitcoin only overnight, betting on data showing bitcon gains mostly occur outside regular market hours.
What to know:
- Nicholas Financial has filed with the SEC to launch a bitcoin ETF that holds BTC only during overnight hours.
- The “AfterDark” ETF buys bitcoin after U.S. stocks close for the day and then sells bitcoin and shifts into Treasuries during the American session.
- Data shows bitcoin tending to perform better when traditional U.S. markets are closed.
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