Bitcoin prices are rising, but major players seem hesitant to join the current rally.
Bitcoin reserves are falling
On-chain data shows that exchange, digital asset banks and miner BTC reserves are relatively lower. In recent weeks, the spot price of BTC is up more than 40%, reaching a low of about $15,300 recorded in Q4 2022. Bitcoin has now risen to retest $23,300 and reached a new high in Q1 2023.
As history shows, the spike in Bitcoin prices should be backed by solid support, mainly from heavyweights including miners and digital asset banks.
Bitcoin miners tend to have large reserves of BTC at all times as they need to liquidate from time to time to cover operational costs. In recent months, after the fall in Bitcoin prices coupled with a high hash rate that may complicate mining success, their reserves have dwindled.
Looking at the reserves of Bitcoin Miners and Digital Asset Banks
According to flowBTC reserves fell from 1.847 million on January 12 to 1.836 million on January 2023. During this time, Bitcoin’s price has been surging, leading one to wonder if the pump is on an empty tank.
It should be noted that miners tend to unload their coins if they are unsure of the price trajectory in the coming weeks and months.
Their sell-off surge pierces the upside momentum and may actually push the coin lower. However, when miners are confident in what lies ahead, they pile up, expecting the trend shift to result in tidy gains on their end. Therefore, the current divergence between miner reserves and prices could be a bearish signal.
In addition to miners, The reserves of digital asset banks are declining. Digital asset bank reserves refer to BTC held by these regulated institutions. In the past few months, after the collapse of FTX, Alameda Research and the effects it had on other players including DCG and Genesis Global, their activity has been almost non-existent.
The contraction means that institutions are playing it safe and may not be willing to collect and store their coins on these ramps. During the last bull cycle, from 2020 to 2021, there was activity banks for digital assetspointing to possible interest from institutions.
While traders and optimists might interpret the recent rally in crypto prices as a net positive for BTC, judging by institutional activity, the absence of clues may raise the question of whether the current rally would last longer.
There may be a regulatory angle that influences the involvement of digital asset banks. Government agencies are questioning whether crypto venture capitals and service providers did enough due diligence before being exposed to crypto in the latest bull cycle.
At the same time, some digital asset banks are reducing their crypto exposure, which affects activity.
Feature image by Dado Ruvic/Reuters, chart by Trading View