As $BTC surges, we analyze the reasons, including market sentiment and the behavior of short- and long-term holders, as well as institutional investors.

After two months of slumber, the Bitcoin market started to act out last week, and the likely trigger was… fake news. However, while the news was fake, the reaction was very real and told us a lot about the current market mood.

What’s even more interesting, as market players started processing this reaction, Bitcoin price began to rise. With $BTC now over $30k (+15% in a week),the Bitcoin market is becoming more and more interesting, especially taking into account that major stock market indexes are falling (-3% for S&P500, -5% for both Nasdaq and CAC40…)  👀

We decided to take a closer look at the state of the Bitcoin market and the behavior of long- and short-term holders, as well as institutional investors.

What the fake news revealed

Last Monday, Cointelegraph erroneously reposted an unverified tweet about the SEC approving BlackRock’s spot Bitcoin ETF, which led to the $BTC price surging almost 10% in a matter of minutes, before deflating as soon as the market realized it was a hoax.

As we wrote in this LinkedIn post last Thursday, the short-term spike caused by Cointelegraph’s blooper has allowed us to make several important conclusions.

First, the record-low volatility may not be the new norm for Bitcoin: the market is keeping a close watch on Bitcoin-related events and is ready to react fast.

Second, the potential approval of a spot Bitcoin ETF is not priced in yet, so when the SEC does approve it (we believe it’s bound to happen), the reaction will be massive. Here’s a reminder of why Bitcoin ETF is important.

As the probability of such ETF approval is improving (Bloomberg analysts now believe there is a 90% chance it gets approved by January), so does the market sentiment.

Long-term holders dominate at 76%

In the past months, Bitcoin market has been marked by extremely low liquidity, which was caused notably by the low number of active market participants.

According to Glassnode, the current market is dominated by long-term holders whose share in the total Bitcoin supply reached an all-time high of 76% last month. These HODLers are often acting on “to the moon” conviction and are rather reluctant to sell their bitcoin.

The wealth distribution cycle graph shows that new investors started to appear at the beginning of the year. They are still relatively few, and their number has stagnated since summer, however it is clear that the new wealth distribution cuycle is underway.

Since the beginning of Bitcoin, bear markets were used by long-term HODLers to buy bitcoin from the desilusioned short-term holders, and bull markets to sell bitcoin to enthusiastic newcomers. To understand if the history is about to repeat itself, it’s important to understand where this cycle’s short-term holders are at.

Short-term holders capitulated

Supermajority of short-term holders were in a negative position these past months.

In September, Glassnode revealed that BTC price was sitting at the edge of a cluster of supply dominated by short-term holders.

Such a market structure where most short-term holders experience increasing losses may lead to a potential capitulation within this group, which could drag Bitcoin price down.

However, this did not happen, and not because the short-term holders resisted selling.

Another table showing short-term holders’ realized gains and losses indicates that many of them resolved to sell at a loss in September, suggesting that this cohort’s capitulation is already happening.

However, since the BTC price did not move much until last week, this capitulation’s impact was mitigated, most likely – by the newcomers. The buying demand has been stronger than the selling pressure, which Glassnode has nonetheless characterized as “one of the most significant periods of market panic we’ve seen in 2023”.

This is good news. Even better one: as BTC exceeds the $30k threshold, the short-term holders’ positions progressively turn from losing to gaining, and those who did not capitulate so far, don’t have a reason to do so now.

Off-chain funds inflow

Institutional investors are getting increasingly excited too.

According to CoinShares, Bitcoin funds saw a $112 million inflow in the past month, after 2.5 months of outflows. This might be one of the sources maintaining and increasing the demand.

Curiously, 89% of inflows are coming from Germany and Switzerland, with the US still hesitant due to regulatory uncertainty.

CoinTelegraph’s unfortunate post must have struck a sensitive chord, revealing the market sentiment better than any survey. The market is not sleeping; it is waiting, and for a reason.

Not only the Bitcoin spot ETF would be an important event, it is now increasingly likely to start a new growth period. After all, Bitcoin is still following its 4-year cycle, and despite dramatic events, such as the LUNA collapse, the FTX crash, and the unprecedented US government crackdown, it is still mirroring the exact same pre-halving price action we saw in 2020 and 2016.