July 14, 2024
1 Solar System Way, Planet Earth, USA

If Bitcoin ETFs are bought, who is sold? Analyst responses

Bitcoin has been struggling even though exchange-traded funds (ETFs) have been bought in cash. Here's why, according to this analyst.

Bitcoin Has Been Seeing a Rise in “Paper BTC” Recently

in a new thread On X, analyst Willy Woo discussed why BTC has seen bearish momentum recently despite buying pressure from spot ETFs and institutional entities.

First of all, the analyst has explained a source of cash selling pressure: the long-term holders (LTH). LTHs refer to market HODLers, who tend to keep their coins idle for long periods.

These investors rarely sell, and the timing of their participation in selling appears to have followed a pattern throughout history. Below is a graph showing the data of Coin Days Destroyed (CDD) metric that reveals this trend.

Bitcoin CDD

The value of the indicator appears to have seen a large spike just a while ago | Source: @woonomic on X

The CDD tracks the number of coins that investors move daily on the blockchain and compares it to the age of those coins. This means that when the CDD rises, many dormant coins have just broken their silence.

As can be seen from the chart, Bitcoin CDD had seen a huge surge earlier in the year when the asset's price had established a new all-time high (ATH). Naturally, this suggests that LTHs potentially engaged in a lot of selling during this rally.

It is also evident from the chart that similar spikes in the indicator also occurred amidst the 2017 and 2021 bull runs. Therefore, this latest sell-off in LTH is not out of line with what has been observed historically.

The other culprit for why the asset's recent run has slowed could be paper Bitcoin. “paper BTC“It basically refers to derivative products that do not involve the investor owning actual tokens of the cryptocurrency.

As the analyst points out:

In the old days, BTC was on an exponential run because the only sellers were a trickle of the OGs and an even smaller number of the miners with their newly mined coins. Today the magic of BTC on paper is what you want to see.

The following graph shows the inventory of Bitcoin on exchanges in recent years.

Bitcoin Exchange Reserve

Looks like the value of the total inventory has slightly increased recently | Source: @woonomic on X

As can be seen in the chart above, the asset's spot inventory has only shown phases of downward and sideways trends over the past few years, meaning that exchanges have not received significant net deposits.

However, BTC spot plus paper inventory saw an increase during the 2022 bear market. This increase implied that BTC paper was being minted rapidly, as spot inventory was only consolidating in the same period. Woo notes that this suggests that paper BTC dictated the bear market.

The analyst has marked on the chart the cases where BTC paper rose during this current bull market. It seems like every time paper BTC goes up, the rally slows down.

Paper BTC inventory has recently risen again, which may explain why Bitcoin has failed to establish bullish momentum.

BTC Price

Bitcoin recovered above the $66,000 mark over the weekend, but the asset has pulled back today as its price has dropped to $65,300.

Bitcoin price chart

The price of the coin seems to have slid down over the last few days | Source: BTCUSD on TradingView

Dall-E Featured Image, woocharts.com, TradingView.com Chart

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