Analysts: Institutional Investor Interest Fueling BTC Rally, Liquidity Crunch Narrative Debunked

 

Crypto analysts are pushing back against the narrative that the current BTC rally is being fuelled by a liquidity crunch afflicting bitcoin mining pools in China. The liquidity crunch, which is caused by an ongoing regulatory crackdown in that country, has reportedly left miners unable to sell their BTC holdings.

Miners Are Selling

The analysts are instead backing a counter-narrative which points to institutional investor interest as the reason for the current BTC rally. Using data to support their assertions, the analysts suggest that the current bull run, which has different characteristics with the one in 2017, is likely to continue as institutional investor interest continues to grow.

First to present data that debunks the Chinese liquidity crunch narrative is Lucas Nuzzi of Coinmetrics. In remarks made via a Twitter thread, Nuzzi argues that mining pools not selling their BTC stocks at this point is just “part of a long-term trend.” Indeed, the Coinmetrics data does show that mining pools, a majority of which are mainly domiciled in China, are not selling as their stock levels have remained within the same range over the past 24 months.

On the other hand, the data shows it is the inventories of individual miners that have been dropping for the past month. This according to Nuzzi suggests that miners are in fact able to sell. Next, Nuzzi uses another metric to bolster his argument against the liquidity crunch narrative. Nuzzi says:

Now, let’s look at miner outflows, which directly measures outgoing payments from both Pools (red) and Individual miners (green). Again, the data invalidates that narrative. The recent spikes in funds sent shows that miners are moving assets, which signals the ability to sell.

Furthermore, the analyst says “the 30-day Miner Rolling Inventory also suggests that nothing out of ordinary is taking place in mining pools or their individual constituents.”

With the data apparently discrediting the liquidity crunch narrative, Nuzzi believes instead that “other factors, such as increased institutional participation and macroeconomic concerns, are more likely the culprit.”

Institutional Investors Behind BTC Rally

Meanwhile, the blockchain analysis firm, Chainalysis is similarly concluding in its own thread that large corporations and billionaires are behind the current bitcoin rally. In its analysis, the firm asserts that “demand is high at a time (when) relatively few bitcoins are available to buy.” The firm adds that “77% of mined BTC that hasn’t been lost is currently held in illiquid wallets that historically send less than 25% of Bitcoin they receive.”

 

This leaves a pool of just 3.4M BTC for buyers at a time when the digital asset is getting an endorsement from mainstream organisations.

In addition, Chainalysis makes the comparison between current data and that from 2017. The data shows that the amount of BTC held at the tail-end of 2017 is almost similar to current levels. Using this data the thread concludes:

The amount of Bitcoin available to buy is similar to during the 2017 bull run. But in 2017, not nearly as much was held in those illiquid wallets we mentioned, which we believe mostly belong to investors holding for the long term.

In the rest of the thread, Chainalysis points to the growing evidence of institutional investors buying BTC for purposes of holding as the reason for the price rally.