Bitcoin holds $28K due to spot buying, but institutional investors are still selling

Bitcoin’s (BTC) price broke above the February 2023 highs of $25,200 after US inflation data was in line with market expectations. The potential fallout of the global banking system further promoted Bitcoin investment as an uncorrelated global hedge similar to gold in March. The correlation between gold and BTC has been rising since the beginning of the month.

However, institutions have become net sellers of Bitcoin in 2023, which raises some red flags. Bitcoin whales, who hold between 10 and 10,000 BTC, have not participated in the current rally. It appears that retail investors are mainly driving the uptrend. The divergence between whale and retail investments could lead to a short-term decline in Bitcoin prices.

Institutions Are Forced BTC Sellers, Analyst Says

Institutional crypto asset flows data from CoinShares reported the biggest two-week sell-off by mutual funds since March 6. The outflows have erased the positive inflows for this year, with net inflows to date of $177 million.

CoinShares’ data tracks the portfolio of global institutional funds with exposure to digital assets, including Grayscale, Coinshares XBT, 21Shares, Purpose and 3iQ.

James Butterfill, CoinShares head of research, noted in the report that the flows “may be driven, in part, by the need for liquidity during this banking crisis, a similar situation seen when the COVID panic first hit the market in March 2020.”

Butterfill’s theory of institutional forced selling may have some credence as chain research firm Santiment informed Cointelegraph that they “currently do not see large whale sales at this time. Bitcoin addresses with 10-10,000 BTC have remained largely flat.”

It is encouraging that whales are not looking to sell the current rally. But as prices continue to rise, the asset will require whale buyers to join the bandwagon; otherwise, the rally may disappear soon.

In addition, the recent event of USDC de-pegging and regulatory crackdown of the BUSD stablecoin has likely caused a minor whale exodus from stablecoins. Santiment reported that “addresses with between $100,000 to $10 million in stablecoins have dropped slightly, but not very much.”

A flow of stablecoins into Bitcoin and other cryptocurrencies is positive for prices. However, large-scale conversions from stablecoins to USD weaken the market’s purchasing power. The lack of additions in which BTC holds suggests that the flows represent more of the latter situation.

Another important stakeholder in the Bitcoin economy is BTC miners. BTC holdings in one-hop miner addresses, which represent BTC accounts that receive coins from mining pools, have steadily increased since the start of 2023.

Some miners booked some profits on March 14 when Bitcoin’s price broke above $25,000 for the first time and again a week later when it reached $28,000. However, the total holdings are still in an upward trend since the start of 2023.

Retail investors on spot exchanges drive the prices

So far, spot buying by retail investors is likely to be driving the upturn. Independent chain analyst and co-founder of Reflexivity Research, Will Clemente, tweeted that the uptrend “appears to be mostly spot driven” with muted open interest volume for BTC futures and funding rates on perpetual contracts.

The stock of BTC addresses with less than 10 BTC continues to rise to new records. The distribution among small hands lends credence to the “arguments against Bitcoin regarding supply concentration” among a few large holders.

Related: Holding Bitcoin: A Profitable Affair 88.5% of Days

However, retail investors have a poor track record when it comes to market entry and exit timing. Therefore, the participation of whale investors is crucial to the confidence of the current rally.

Technically, the BTC/USD pair appears strong on a daily time frame with a positive breakout and consolidation above its expanding wedge pattern. Currently, buyers are facing resistance from the June 2022 breakdown levels between $28,000 and $30,000.

On the other hand, the CME futures data increases the chance of a pullback with two unfilled gaps towards $26,500 and $19,500. A price gap on CME futures charts is formed on US holidays and weekends when the spot trading of Bitcoin on exchanges creates a difference between the closing and opening price on the CME.

Typically, CME gaps are filled by a price action against the closing price on the CME to track the pump in the futures market. Veteran trader Peter Brandt the council open a short BTC position based on the gap.

There is a chance that more sophisticated investors will wait for the US Federal Reserve’s policy rate meeting on March 22 before opening their swing positions. The Fed’s policy rate announcement is likely to act as a strong market mover, inducing significant market volatility.

The views, thoughts and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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.