First Mover: Bitcoin ‘Rich List’ Grows as Whales HODL and Price Retakes $18K

Bitcoin reached fresh 35-month highs above $18,400 during the European trading hours. The cryptocurrency has failed to keep gains above $18,000 in the previous two trading days. It will be interesting to see if prices establish a foothold above that level on Friday. 

“The market showed a lot of resilience and dip buying interest to shake off any immediate questions about the sustainability of the recent upside. So much so, that bitcoin has moved back above the $18,000 level and remains on track to retest the highs from earlier on in the week,” Denis Vinokourov, head of research at the London-based prime brokerage Bequant said. 

Other cryptocurrencies also rallied, with ether penetrating the psychological hurdle of $500 for the first time since July 2018.

In traditional markets, European stocks advanced, ignoring the fading prospect of additional U.S. fiscal stimulus and rising coronavirus crises.  U.S. stock futures, however, dropped and gold eked out gains as the Treasury secretary announced plans to let several of Federal Reserve’s emergency lending programs expire on Dec. 31. 

Bitcoin has climbed for seven straight weeks, the longest streak since early 2017, when prices began their push toward the all-time-high near $20,000 in December of that year. And crypto traders are wondering how long this latest rally can last. 

The move higher started in early October when prices were around $10,700, and bitcoin is now changing hands around $18,000. On a year-to-date basis, the cryptocurrency has gained an astounding 150%, the most since the 14-fold gains witnessed in 2017. 

The ascent has been so rapid and powerful that analysts are starting to use terms like “parabolic,” where increases turn exponential.

“Bitcoin’s recent continuous uptrend displays stark similarities to the 2017 bull run, where a parabolic trend took it up to $20,000,” Lennard Neo, head of research for the cryptocurrency-focused structured-products firm Stack Funds, wrote Thursday in a weekly report.

For clues on what comes next, some cryptocurrency analysts are looking to data extracted from the blockchain, making inferences about what types of buyers are coming into the market, and who’s selling, if anyone. 

Those indicators appear to show just how few investors are willing to part with their bitcoin, even with signs mounting that a growing number of big institutional fund managers from traditional markets are seduced by the outsize gains, during a year when few other trades appear to be producing big wins. The Standard & Poor’s 500 Index of large U.S. stocks is up 11% this year, and fixed-income returns are hard to come by, with 10-year Treasury notes yielding less than 1%.

“Bitcoin’s price is rising because demand for [b]itcoin is increasing at a time when there’s relatively few bitcoin available to buy,” the blockchain data firm Chainalysis wrote Thursday in a report. 

The firm produced a chart tracking what appear to be “investor-held” wallets – those whose coins rarely if ever move – versus “trader-held” wallets, where sales take place more frequently. The number of bitcoin in trader-held wallets, or those theoretically more likely to take profits as prices rise, has declined this year. The amount of investor-held bitcoin, meanwhile, has risen steadily. 

Another blockchain data firm, CryptoQuant, is tracking bitcoin “whales” – those accounts big enough to send a giant sell order to an exchange, typically swamping buy orders from smaller traders. 

The “exchange whale ratio,” calculated by dividing the value of the largest 10 deposits on exchanges by the total amount of deposits, is currently below the 90% level, which would signal an extreme likelihood that a big price drop is looming. The gauge currently sits around 85%, where “the chance of prices continuing to rise is high,” CryptoQuant wrote Thursday in an email. 

“Looking at the movement of whales, it appears that the rise in prices will continue,” according to the report. 

Hong Fang, CEO of the San Francisco-based crypto exchange OKCoin, wrote Thursday in an op-ed for CryptoX Opinion that “the burning question is whether bitcoin is becoming overpriced.”  

She argued that it’s not unreasonable to expect a price around $100,000 next year, assuming 1%-2% of total U.S. household wealth of $112 trillion gets allocated to bitcoin.  

“This is a timing risk,” she wrote. “It is quite possible that it may take much longer than expected for bitcoin to go mainstream.” 

The whales represent a shorter-term threat. If bitcoin continues its parabolic rise, they might come splashing around. 

Bitcoin’s rich list, or the number of addresses holding at least 1,000 BTC, continues to rise along with the price, suggesting increased interest from institutions and high-net-worth investors. 

The metric recently reached a record high of 2,237, marking a 5.6% increase on a year-to-date basis, according to data source Glassnode. The rich list has grown by over 2.5% alongside bitcoin’s rice from $10,000 to $18,000 seen in the past six weeks.

A single person can hold multiple addresses. Crypto exchanges also store coins belonging to traders in multiple addresses. As such, the rich list is not an accurate metric of increased institutional participation or user adoption. 

That said, there is strong reason to believe the recent rise in the number of large addresses is the result of influx of high-net-worth individuals. Several public companies such as MicroStrategy and Square have made a foray into the bitcoin market in the past eight weeks or so. 

With strong hands backing the price rally, the cryptocurrency looks set to challenge record highs before the year-end, as anticipated by some analysts.