Bitcoin hoarding in personal wallets signals support after jump to $30,000, BofA says
(Bloomberg) — Bitcoin’s stunning 2023 rally may have room to run if flows between cryptocurrency exchanges and personal digital wallets are any guide, according to strategists at Bank of America Corp.
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A net $368 million worth of Bitcoin was sent to personal wallets in the week to April 4, a period that saw the year’s second-largest net Bitcoin outflow from crypto exchanges, strategists Alkesh Shah and Andrew Moss wrote in a note.
“Investors transfer tokens from exchange wallets to their personal wallets when they intend to hold them (or HODL), indicating a potential reduction in selling pressure,” they said. The acronym “HODL” is a meme in the crypto sector that refers to the idea of holding onto tokens for the long term.
Concerns stemming from U.S. regulatory efforts on digital asset platforms may have triggered the outflow from exchanges, BofA strategists wrote in a note published Monday.
Bitcoin’s year-to-date rise has outpaced major asset classes and sparked a difficult debate over why the biggest token is heading back from a 2022 rout.
Some analysts argue that expectations of possible interest rate cuts by the Federal Reserve are strengthening riskier investments such as crypto. Other theories – often disputed – include the coin’s alleged ability to cushion stress in the banking sector or its potential to hedge inflation as a kind of digital gold.
Big week
Bitcoin this week climbed above $30,000 for the first time since June 2022. The token is up more than 80% since December 31, beating the Nasdaq 100 tech index’s 19% gain. Gold has risen around 9%.
Digital tokens have jumped in 2023 despite aggressive actions by US regulators following the demise of FTX and other crypto outfits. The rally has come amid a drop in crypto market liquidity and trading volume following the bankruptcies.
“I look for Bitcoin to move towards the $33,000 level before any meaningful technical correction takes place,” said Nathan Batchelor, managing partner at research platform Biyond Trader. “Bitcoin has stopped reacting to bad news. This is a clear sign of a strong buyer’s market.”
Traders are waiting for a new signal to confirm Bitcoin’s breakout, according to Garry Krugljakow, founder of 0VIX, an open-source lending and borrowing protocol in blockchain-based decentralized finance, or DeFi.
Inflation printout
He added that economic data coming this week could provide that signal, particularly Wednesday’s US consumer price index. The median estimate in a Bloomberg News survey calls for a 5.1% jump in March from a year earlier.
“Anything below 5.2% or around 5.2% could lead to a bullish continuation for” Bitcoin, Krugljakow said. “5.3% or higher will most likely provide a small shock and dampen the current price action.”
Unlike Bitcoin, the net inflow of Ether to crypto exchanges in the week through April 4 was the largest in 2023, according to BofA. It’s ahead of the Ethereum blockchain’s biggest software upgrade since last year’s merger.
The so-called Shanghai upgrade is the culmination of years of work that changes the way Ethereum operates. While BofA strategists do not expect the event to directly drive selling pressure, they do anticipate increased volatility around the shift in part due to reduced liquidity, currency inflows and derivatives activity.
Ether, the largest token after Bitcoin, is up about 55% so far this year, roughly in line with a measurement of the top 100 digital assets. Ether fell 1.7% to $1,863 at 11:20 a.m. in Tokyo on Wednesday, while Bitcoin fell less than 1% to hover around $30,000.
–With the assistance of Vildana Hajric.
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