Anatomy of Bitcoin’s current rally as Fed attempts to save the day

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  • Infla­tion fears fuel Bit­coin demand as investors shift atten­tion to hard money.
  • Assess­ing the prob­a­bil­i­ty of short-term sell pres­sure or sus­tained upside.

Bit­coin has regained strong bull­ish activ­i­ty this week which has pushed it to a new 6‑month high and a new YTD high. But the rea­son for this ral­ly is far more inter­est­ing and may set the pace for Bitcoin’s per­for­mance for the rest of the year.

Bit­coin most­ly attrib­ut­es its lat­est ral­ly to fears about tra­di­tion­al finance’s col­lapse. Those con­cerns have trig­gered a loss of con­fi­dence in the bank­ing indus­try espe­cial­ly after Sig­na­ture and SVB collapsed.

Con­cerns about tra­di­tion­al finance pres­sures may have prompt­ed many to move their funds into Bitcoin.

The Trad­Fi con­cerns have fur­ther been exas­per­at­ed by infla­tion con­cerns. Recent reports reveal that the Fed­er­al Reserve report­ed­ly print­ed $300 bil­lion this week. The move puts the FED in a tough posi­tion and under­mines recent efforts to com­bat inflation.

Reports also claim that half of the print­ed amount was used to bail out SVB and Sig­na­ture Bank after their recent woes. The week­ly Bit­coin ral­ly is impor­tant because it con­firms a pos­i­tive response to infla­tion concerns.

A pref­er­ence for hard mon­ey is expect­ed under such con­di­tions, hence more BTC demand is expect­ed if the FED con­tin­ues to print money.

Evaluating the current Bitcoin demand

The lat­est surge in Bit­coin demand is more appar­ent, espe­cial­ly among retail buy­ers. The num­ber of Bit­coin address­es cur­rent­ly hold­ing at least 0.01 BTC recen­ty surged to a new his­toric high. This con­firms that retail buy­ers have been accumulating.

Whales have also been accu­mu­lat­ing BTC. The num­ber of address­es hold­ing over 1,000 BTC has been on the rise since 12 Feb­ru­ary. How­ev­er, whale demand is still rel­a­tive­ly low giv­en that the mar­ket is still low­er than its week­ly high.

Bitcoin addresses holding over 1,000 BTC

Source: Glassnode

Can Bitcoin sustain the current rally?

Bit­coin exchange flows reveal that both exchange inflows and out­flows have tanked sig­nif­i­cant­ly in the last 24 hours. This indi­cates a drop in the buy­ing and sell­ing pres­sure.

Nev­er­the­less, exchange inflows were slight­ly high­er than out­flows at press time, con­firm­ing that there was some sell­ing pressure.

Bitcoin exchange flows

Source: Cryp­to­Quant

More­over, there was a surge in demand for BTC deriv­a­tives this week. This was evi­dent by the surge in open inter­est to a new week­ly high.

How­ev­er, despite this surge, the lev­el of lever­age in the mar­ket is still low, hint­ing at some lev­el of uncer­tain­ty in the market.

Bitcoin open interest and estimated leverage ratio

Source: Cryp­to­Quant

The afore­men­tioned uncer­tain­ty may sug­gest that investors are unsure as to whether BTC can sum up enough sell­ing pres­sure. Or, whether it can sus­tain the cur­rent ral­ly in the short term.

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