Bitcoin bulls aim for $55K+ as short-term seller supply dwindles

Bitcoin BTCUSD price has rallied by 21% over the past 7 days, reaching $52,000 for the first time since December 2021. The price surge is mainly attributed to the growing inflow into spot Bitcoin exchange-traded funds (ETF) reaching a peak of $631.3 million on Feb. 13. Traders are speculating whether over-the-counter (OTC) desks have depleted their coin reserves, leading them to resort to spot buying on regular exchanges and creating an unbalanced situation favoring bullish momentum. 

While such a hypothesis is easy to believe and somewhat misleading, on-chain data from Glassnode shows a decrease in short-term holders' supply, and if conditions are sustained, Bitcoin price could rally above $55,000.

Short-term Bitcoin holders have been selling at a fast pace

It's essential to dispel the misconception that arbitrage desks are always net long (buyers), which implies that they have directional exposure to the price. While having a significant spot market position is crucial for their business, it is often hedged using derivative contracts. Similarly, not every OTC deal requires a buyer and seller, as intermediaries can turn to spot exchanges' order books and futures contracts to fulfill requests. In short, whether the arbitrage desk has a 'buffer' to immediately transfer coins or not does not alter the price dynamic.

Consequently, if spot Bitcoin ETF issuers added a net $1.84 billion BTC in the past week, other entities must have sold the same quantity. The crucial question for price formation is how desperate each side is to close the deal. Long-term holders, addresses that have not moved their coins in over 6 months, are typically less likely to sell after a price rally. This is why analysts turn to on-chain analysis to provide a rough idea of how resilient the market may be amid fluctuations as a gauge of investor strength and conviction.

Data indicates that short-term holders, addresses funded less than 6 months ago, significantly increased their transactions to exchanges by an average of 49,504 BTC per day in the past week. In comparison, long-term holders sent only 2,023 BTC per day during the same period, suggesting that the entities primarily selling are short-term holders. Despite 79% of the supply being held by long-term holders, potential sell-offs may occur rapidly.

Addresses with less than 100 BTC were net sellers in the past week

However, one might argue that whales who purchased Bitcoin in anticipation of the spot ETF launch are currently active on the sell side, making it challenging to achieve higher breakthroughs. Yet, data shows that this is not the case.

Notably, every class of holder was a net seller in the past 7 days, except for very large whales holding above 100 BTC, likely representing institutions. These investors added a total of 20,168 BTC, valued at over $1 billion, and this can be attributed to spot Bitcoin ETF issuers such as BlackRock, Fidelity, BitWise, Ark 21Shares, and others. While the sustainability of this inflow is uncertain, the data suggests that demand for ETF products increases as Bitcoin price rallies, providing strong support for bullish momentum.

This data establishes that a rally above $55,000 is no longer solely dependent on retail flow. Consequently, indicators that previously reflected results, such as Google search trends or the "Fear and Greed Index," may not accurately mirror institutional investors’ appetite for risk and subsequent demand for Bitcoin.

Short-term Bitcoin holders have been swiftly sending coins to exchanges, yet the price has surged from $42,900 to $52,000 in 7 days (+21%). Unless long-term holders decide to reduce their positions beyond a certain price level, all signs point to a weakened supply side, favoring further gains above $52,000.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.