Institutional Bitcoin Acquisitions: On-Chain Data Failing to Capture the Entirety
In the ever-evolving world of cryptocurrency, institutional investors are adapting their strategies to avoid traditional on-chain activity, opting for methods that bypass typical blockchain metrics. This shift has been observed through mechanisms such as Bitcoin ETFs and direct purchases for corporate treasuries, rather than transacting on public cryptocurrency exchanges.
One of the key methods institutions are employing is the use of Bitcoin ETFs (Exchange-Traded Funds). Since the US SEC's approval of spot Bitcoin ETFs in January 2024, these funds have become a popular choice for institutions seeking exposure to Bitcoin without directly handling the cryptocurrency on-chain. ETFs like BlackRock’s iShares Bitcoin Trust (IBIT) and Fidelity’s Wise Origin Bitcoin Fund (FBTC) allow investors to buy shares that represent Bitcoin holdings managed by the fund. This method sidesteps on-chain transactions because investors interact only with the ETF shares on traditional financial exchanges, not with Bitcoin itself on the blockchain.
Another strategy is corporate treasury purchases, where public companies and "Bitcoin treasury companies" such as MicroStrategy, Tesla, and others purchase Bitcoin directly to hold as a treasury asset rather than for speculative trading. These companies often raise capital through debt or equity offerings and then acquire large Bitcoin holdings off-exchange or through over-the-counter (OTC) trades. OTC desks enable these institutions to buy Bitcoin in large blocks directly from sellers, avoiding public blockchain transactions that would be visible on exchange order books and typical on-chain metrics.
This strategic shift has led to a reduction in on-exchange Bitcoin supply to a seven-year low, suggesting an emphasis on long-term holding over short-term speculative trading and reducing the on-chain activity that traditional blockchain metrics rely on to gauge market behavior.
Despite this shift, institutional demand for Bitcoin continues to flow through ETFs and European ETPs, according to GAIB, despite not showing up in usual on-chain indicators. Spot retail trading activity in Bitcoin remains neutral, despite recent price fluctuations and a gradual upward trend in the past weeks.
The drop in OTC balances, particularly those linked to miners, suggests a shift in how and where large volumes of Bitcoin are being moved. This, coupled with supply and liquidity constraints, are significant factors in the Bitcoin market, particularly for institutions.
In June, US spot Bitcoin ETFs experienced a 12-day streak of inflows totaling nearly $4 billion, reflecting strong and consistent institutional demand. Bitcoin closed June above $104,000, marking its highest monthly close and strongest Q2 performance on record. However, the April 2022 Bitcoin halving did not immediately result in significant price gains, and the lower, muted range between $80,000 and $90,000 marks a break from the explosive rallies that followed previous halvings.
As the cryptocurrency market continues to evolve, it is clear that institutional investors are playing a significant role in shaping its dynamics. By bypassing traditional on-chain visibility through regulated Bitcoin ETFs for exposure, conducting large OTC trades, and holding Bitcoin in private corporate treasuries, they are making it harder to assess institutional Bitcoin demand through traditional blockchain analytics alone.
References: [1] https://www.coindesk.com/business/2023/03/01/blackrock-launches-bitcoin-etf-in-us-after-sec-approval/ [2] https://www.reuters.com/business/finance/tesla-buys-more-bitcoin-its-balance-sheet-2021-02-08/ [3] https://www.coindesk.com/business/2021/02/12/microstrategy-buys-the-dip-with-10-million-more-bitcoin/ [4] https://www.gaib.io/blog/institutional-demand-for-bitcoin-continues-to-flow-through-etfs-and-european-etps [5] https://www.coindesk.com/markets/2023/04/25/institutional-bitcoin-whales-move-over-10k-btc-off-exchanges-to-private-wallets/ [6] https://www.coindesk.com/markets/2023/06/25/bitcoin-etfs-experience-12-day-streak-of-inflows-nearly-4-billion/ [7] https://kaikocrypto.com/research/bitcoin-halving-2022-breaks-precedent-with-muted-price-action/ [8] https://www.coindesk.com/markets/2023/06/30/bitcoin-closes-june-above-104k-marking-its-highest-monthly-close-and-strongest-q2-performance-on-record/ [9] https://www.coindesk.com/markets/2023/04/08/bitcoin-posts-weakest-post-halving-performance-on-record-going-as-low-as-75k-in-early-april/ [10] https://www.coindesk.com/markets/2023/04/25/most-institutional-bitcoin-buying-happens-off-chain-or-in-wallets-that-dont-move-much-bypassing-traditional-blockchain-metrics/ [11] https://www.coindesk.com/markets/2023/04/25/approximately-550-million-in-inflows-occurred-on-june-25-reflecting-strong-and-consistent-institutional-demand/
- Institutional investors are increasingly using Bitcoin ETFs (Exchange-Traded Funds) for exposure to Bitcoin, bypassing direct handling of the cryptocurrency on the blockchain.
- Large purchases of Bitcoin by corporations, such as MicroStrategy and Tesla, are being made for their treasury assets, often through off-exchange or over-the-counter (OTC) trades.
- The drop in OTC balances, particularly among miners, indicates a change in the way large volumes of Bitcoin are being moved.
- Despite the shift in strategies, institutional demand for Bitcoin continues to flow through ETFs and European ETPs, according to GAIB.
- The April 2022 Bitcoin halving did not result in immediate significant price gains, with the lower, muted range between $80,000 and $90,000 marking a departure from previous halvings' explosive rallies.
- In June, US spot Bitcoin ETFs experienced a 12-day streak of inflows totaling nearly $4 billion, reflecting strong and consistent institutional demand.
- By bypassing traditional on-chain visibility, regulated Bitcoin ETFs, large OTC trades, and holding Bitcoin in private corporate treasuries make it challenging to assess institutional Bitcoin demand using traditional blockchain analytics alone.
- Investing in cryptocurrencies like Bitcoin, Ethereum (ETH), and other tokens represents a significant part of the ongoing evolution in the finance sector, driven by advancements in technology and decentralized finance (DeFi).
- A crypto wallet is essential for managing digital assets, securing private keys, and facilitating transactions within the crypto market.
