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Bitcoin and other cryptos remain well below their November 2021 records, but prices have rebounded recently.
Dreamstime
After suffering a brutal year so far,
Bitcoin
Prices have rebounded in the past month with mom and pop investors pouring money into cryptocurrencies.
Bitcoin prices rose nearly 20% in July, to nearly $24,000 from under $20,000. Still, the largest cryptocurrency has fallen by two-thirds from November 2021’s all-time high.
Fueling Bitcoin’s recent rally is the token’s correlation to stocks — particularly technology stocks — which have risen amid an easing of investor concerns over interest rate hikes by the Federal Reserve. The technological warehouse
Nasdaq
rose 12% to achieve its best July performance ever and the biggest one-month gain since April 2020.
But correlations aside, there needs to be investors pouring money into digital assets for Bitcoin prices to go up. And it has been retail traders — especially smaller ones based in the U.S. — that drove strong demand for Bitcoin in July, and continue to push prices higher in August, according to a number of market indicators.
“Retail is buying Bitcoin at the fastest rate in history,” Marcus Sotiriou, an analyst at digital asset broker GlobalBlock, wrote in a late July note.
A sign that US investors are particularly crypto-hungry is the Coinbase Premium Gap, which measures the difference between Bitcoin prices quoted on
Coinbase Global
(ticker: COIN) and those on Binance, the world’s largest crypto exchange. Since Coinbase is mostly popular in the US, the gap – tracked by data firm CryptoQuant – can be read as an indicator of how crypto demand among US investors stacks up against those in the rest of the world.
As recently as July 12th, there was a $25 per Bitcoin discount on Coinbase compared to Binance, but as the month progressed, the discount turned into a premium for the first time in months. By July 31, investors on US-based Coinbase paid $14 per Bitcoin premium to acquire the token, the highest premium since the crypto changed hands around $40,000.
Other evidence supports the notion that primarily smaller traders have moved in to buy Bitcoin as it trades at its lowest point since 2020. The total supply of Bitcoin in the largest 1% of accounts fell to 17.32 million from 17.34 million across the month of July, according to crypto market intelligence firm Messari. In contrast, the supply of Bitcoin in accounts with more than $10,000 increased from 18.2 million to 18.4 million in July.
“The 90-day change in Bitcoin addresses with less than 1 coin (usually retail) is at a record high. The last time it was close to this high was in 2018 when Bitcoin peaked at around $20,000,” noted Sotiriou of GlobalBlock. “The fact that a similar rate of accumulation is now occurring after a 70% drop, showing the conviction of retail holders about Bitcoin’s long-term value.”
The same trend is reflected in the crypto derivatives market, which accounts for two-thirds of exchange-traded digital asset volumes, according to CryptoCompare. In the US, Bitcoin futures are particularly popular among institutional investors, because these products are traded on the CME and regulated by the Commodity Futures Trading Commission.
CME offers two types of Bitcoin futures: A standard contract valued at 5 Bitcoin, or more than $115,000 at current prices; and a microcontract valued at 10% of 1 Bitcoin, or roughly $2,300. The former contract is more popular with institutional investors, while the latter is more aimed at a retail trade.
Open interest for standard CME Bitcoin futures – which refers to the total number of contracts outstanding – rose from just 13,466 in early July to 13,480, while open interest among micro Bitcoin futures jumped from 15,998 to 24,960.
Write to Jack Denton at [email protected]
