Bitcoin prices are running higher, but major players seem reluctant to buy into the current rally.
Decrease in Bitcoin reserves
On-chain data shows that exchanges, digital asset banks, and miners have relatively small BTC reserves. Over the past weeks, the spot price of BTC has increased by more than 40%, reaching around $15,300 registered in Q4 2022. Bitcoin has now risen and retested $23,300, reaching a new Q1 2023 high.
As history shows, Bitcoin price increases should be on the back of solid support, especially from heavyweights, including miners and digital asset banks.
Bitcoin miners have large reserves of BTC at any given time because they need to cover the operation costs from time to time. In recent months, their reserves have dwindled, following a drop in bitcoin prices and a high hash rate potentially making mining success difficult.
By looking at the reserves of Bitcoin miners and digital asset banks
According to The canals, BTC reserves decreased from 1.847 million on January 12 to 1.836 million on January 2023. During this time, the price of Bitcoin has been rising rapidly, begging the question of whether the pump is on an empty tank.
It should be noted that miners unload their coins when they are uncertain about the price trajectory in the coming weeks and months.
Their sealing deluge punctures the reverse momentum and can push the coin downwards. However, when miners are sure about what’s ahead, they accumulate, and expect a change in trend that will result in a tidy profit on their end. Therefore, the current divergence between mining reserves and prices could be a bearish signal.
Apart from miners, Digital asset bank reserves are dwindling.. Digital asset bank deposits refer to BTC held by these regulated entities. In the past few months, following the demise of FTX, Alameda Research, and its impact on other players, including DCG and Genesis Global, their activity has been almost non-existent.
The contraction means that institutions are playing safe and may not be willing to deposit and store their coins in these ramps. During the last bull cycle, from 2020 to 2021, there was significant activity between them Digital Asset BankIndicating potential interest from institutions
While traders and optimists may see the recent bounce in crypto prices as a net positive for BTC, the absence of leads judging from institutional activity may question whether the current rally will last much longer.
There may be a regulatory angle affecting the involvement of digital asset banks. Government agencies are asking whether crypto venture capitals and service providers took due diligence before exposing themselves to crypto in the last bull cycle.
At the same time, some digital asset banks are reducing their crypto exposure, affecting activity.
Feature image by Dado Ruvic/Reuters, chart by TradingView
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