Bitcoin ‘whales’ and ‘fishes’ pause accumulation as markets weigh March 50bps hike odds

Bitcoin

If Bitcoin benefited from quantitative easing, will it be hurt by quantitative tightening?

An uptick in Bitcoin (BTC) supply to whales' addresses witnessed across January appears to be stalling midway as the price continues its intraday correction toward $42,000, the latest data from CoinMetrics shows.

Whales, fishes take a break from Bitcoin

The sum of Bitcoin being held in addresses whose balance was at least 1,000 BTC came to be 8.10 million BTC as of Feb. 16, almost 0.12% higher month-to-date. In comparison, the balance was 7.91 million BTC at the beginning of this year, up 2.4% year-to-date.

*Bitcoin supply in addresses with balance greater than 1,000 BTC. Source: CoinMetrics, Messari*

Notably, the accumulation behavior among Bitcoin's richest wallets started slowing down after BTC closed above $40,000 in early February. Their supply fluctuated within the 8.09-8.10 million BTC range as Bitcoin did the same between $41,000 and $45,500, signaling that demand from whales has been subsiding inside the said trading area.

A similar outlook appeared in addresses that hold less than 1 BTC, also called "fishes," showcasing that they had halted the accumulation of Bitcoin in February as its price entered the $41,000-45,500 price range.

Looks like the accumulation trend is stalling with #BTC around $44k:
No breakout for the whales addresses.
Plateau for the small fish.

I guess everyone is cautious while waiting to see what the FOMC will do next. pic.twitter.com/Ou8w1t7U5m
— ecoinometrics (@ecoinometrics) February 17, 2022

Ecoinometrics' analyst Nick blamed the Federal Reserve's aggressive tightening plans for making Bitcoin whales and fishes "cautious," reiterating his statements from last week, wherein he warned that "if Bitcoin has greatly benefited from quantitative easing, it can also be hurt by quantitative tightening."

"This is why inflation not showing any sign of slowing down is a big deal."

No "dot plot" yet

On Wednesday, the Federal Open Market Committee released the minutes of its January meeting, revealing a group of thoroughly alarmed central bank governors looking more prepared to hike rates too much to contain inflation.

As for how fast and how far the rate hikes would go, the minutes did not leave any hints.

To hike or not to hike? The Fed keeps Bitcoin markets in limbo. https://t.co/O0ty3kHKc8 pic.twitter.com/R4io3NMLia
— Cointelegraph Markets (@CointelegraphMT) February 17, 2022

Vasja Zupan, president of Dubai-based Matrix exchange, told Cointelegraph that the Fed fund futures market now sees a 50% possibility of a 50bps rate hike in March, a drop from the previous 63%. But the minutes themselves do not discuss a 0.5% interest rate increase anywhere.

"Of course, the mixed macroeconomic outlook has left Bitcoin's most influential investors — the whales and long-term holders — in the dark," asserted Zupan, adding:

"The top cryptocurrency has been cluelessly tailing day-to-day trends in the U.S. stock market. However, I see it as weighted and not long-term significant, especially as the Fed bosses—hopefully—shed more light on their dot-plot after the March hike."

Strong hodling sentiment

Researcher Willy Woo provided a long-term bullish outlook for Bitcoin, noting that its recent price declines, including the 50% drawdown from $69,000, were due to selling in the futures market, not on-chain investors.

*Bitcoin demand/supply among holders versus futures market. Source: Willy Woo*

"In the old regime of a bearish phase (see May 2021), investors would simply sell their BTC into cash," Woo wrote in a note published Feb. 15, adding:

"In the new regime, assuming the investor wants to stay in cash rather than to rotate capital into another asset like equities, it's much more profitable to hold onto BTC while shorting the futures market."

As Glassnode further noted, in the May-July 2021 session, investors' de-risking in the Bitcoin futures market coincided with a sale of coins in the spot market, which was confirmed by a rise in net coin inflow to exchanges. But that is not the case in the ongoing price decline, as shown in the chart below.

*Bitcoin exchange net position change. Source: Glassnode*

"Across all exchanges we track, BTC is flowing out of reserves and into investor wallets at a rate of 42.9k BTC per month," Glassnode wrote, adding:

"This trend of net outflows has now been sustained for around 3-weeks, supporting the current price bounce from the recent $33.5k lows."

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

Network growth offsets macroeconomic scare

Crypto markets have been whipsawed since the beginning of 2022 as investors assessed the U.S. Federal Reserve's monetary tightening prospects. After reaching its record high above $150 in November 2021, AVAX lost as much as 65% of its value in what many have termed as "crypto winter."

Similarly, top cryptocurrencies Bitcoin (BTC) and Ether (ETH) plunged by as much as 52% and 57% from their Nov. 2021 record highs. But they recovered almost half of their losses after bottoming out in late Jan. 2022, thus prompting other crypto assets — including AVAX — to undergo similar healing rallies.

AVAX price also rose as Avalanche—as a standalone blockchain project—reported massive network growth at 2021's close.

That included a rise in the number of its daily active addresses to 70,000 per day in Q4 versus 10,000 per day in Q3 and a 714% rise in the total value locked (TVL), the fastest growth among its competitors within the Layer-1 and Layer-2 categories, after the arrival of leading Ethereum protocols, Aave and Curve, into its ecosystem.

Avalanche 2021 total value locked versus competitors. Source: TradingView

Interestingly, the Avalanche network grew in Q4 despite a drop in its net market valuation in the same period, suggesting AVAX merely reacted to turbulence in the crypto and, in turn, the global markets, led by the Fed's so-called taper tantrums.

But a report co-authored by Messari researchers Chase Devens and James Trautman hinted at higher AVAX adoption in the quarterly sessions ahead. It mentioned Avalanche Rush, a $180 million liquidity mining incentive program launched in August 2021, for its ability to attract more participants into the network.

Excerpts from the report:

"While Avalanche Rush may continue to serve as a catalyst for ecosystem growth and garner more project launches and partnerships, significant technological advancements are on the horizon for the teams developing the Avalanche core platform and are critical to the network's ability to sustain further growth."

AVAX technical outlook

AVAX's recent upside move met with selloff near a multi-month descending trendline resistance this Tuesday.

Specifically, the resistance comes as a part of a falling channel. AVAX has been trending lower inside it since the beginning of its massive correction move in late November 2021. As a result, the Avalanche token's probability of continuing downward inside the channel's range—for now—appears higher.

AVAX/USD daily price chart featuring falling channel. Source: TradingView

An extended pullback upon testing the channel's upper trendline as resistance may push AVAX toward the interim support level of $86.50. A further breakdown would have AVAX/USD eyeing $72 as its next target.

Nevertheless, on the whole, AVAX's bearish target on a pullback looks to be near the channel's lower trendline —that is around $57.

Conversely, a decisive move above the channel's upper trendline could have AVAX eye $104 as its next upside target, with an inclination to hit $135 on a further move upward.

Quantitative Tightening