Bitcoin Outflow Reached $21million

2022-08-29, 04:09

[TL;DR]

Bitcoin has been experiencing a consistent outflow since the beginning of the month totaling $21 million in the first two weeks and $15 million in the third week.

Bitcoin inflow indicates that the crypto is being deposited on exchanges, while Outflow means more Bitcoin is being transferred from exchanges to wallets.

The recent outflows have been generally appraised to signal negative sentiments among institutional investors.

Whereas outflows are said to signal a bullish market, the rise of stablecoins as the dominant quote currency in crypto altcoin trading might be a factor in the market dynamics.

Introduction

According to CoinShares' weekly report, Bitcoin outflow reached $21 million for two consecutive weeks from the beginning of August. The latest update also shows that Bitcoin, where the mild negative sentiment has been focused, saw a third straight week of outflows amounting to US$15 million. Last week's $21 million is considered the largest month-to-date. Other assets, in addition to Bitcoin, experienced outflows during the week under review. For example, digital investment products saw a $17 million outflow. This move indicates that institutional investors remain skeptical of the cryptocurrency market.

What are Outflows and Inflows?

Asset deposits into and withdrawals from centralized exchanges (CEXs) are inflows and outflows. If there is a Bitcoin (BTC) outflow from exchanges, more people are withdrawing Bitcoin to their wallets, and the price may rise. If there is an inflow of Bitcoin, more people are selling on the exchange, which could cause the price to fall.

Inflow and Outflow are frequent occurrences that can assist traders in planning their trades accordingly. An inflow indicates that crypto is being deposited on exchanges. A large inflow of Bitcoin capital indicates a price drop and bearish sentiment.

An outflow indicates that more cryptocurrency is being transferred from exchanges to wallets. During an outflow, Bitcoin becomes scarce, causing its price to rise.

Liquidity refers to the cash assets that support the value of the cryptocurrency on exchanges. Users sell their Bitcoin and altcoins for liquidity, such as Tether (USDT), on exchanges.

If the liquidity from a large Bitcoin sell is depleted, the BTC/USDT balance ratio decreases in favor of BTC, and the price falls; when there are fewer Bitcoins available, the price rises.

Some observers have also considered outflows as bearish in specific terms. Outflows indicate investors moving their investments from a specific cryptocurrency into other assets such as cash or other cryptos. Inflows into an investment, on the other hand, can be considered bullish.

Latest Bitcoin and Other Assets Outflows and Inflows

coinshares.com

Almost $30 million in investment has left Bitcoin products since the beginning of August. Nevertheless, the year-to-date BTC inflows are approximately $291 million. Global crypto asset management firms manage more than $20 billion in Bitcoin assets. As for digital asset investment products, their inflows last week totaled US$9 million, 55% of the year average, suggesting low participation from investors. The inflows from short-Bitcoin were $0.2 million during the same period. In contrast, Ethereum seems to be witnessing a turn-around in sentiment, with the weekly inflows reaching $3 million. The turn-around can be attributed to the improving clarity on the Merge, as Ethereum has seen a 9-week run of inflows reaching $162 million.

The inflows of other altcoins have not been remarkable. For example, whereas Cardano's inflows summed up to $0.5 million, Solana has outflows for a second week reaching $1.4 million.

Bitcoin Outflows and Market Dynamics

coinshares.com

The rise of stablecoins has been one of the underlying market dynamics of the last three years. For example, Tether (USDT) has surpassed Bitcoin as the dominant quote currency in crypto altcoin trading. That means that when people want to buy crypto on an exchange, they are much more likely to do so in Tether or USD coin (USDC).

By the beginning of 2020, stablecoins had already surpassed Bitcoin as the dominant crypto quote currency. Since then, Tether and USDC have consumed a growing share of quote currency volume, gradually replacing Bitcoin. As a result, rising Bitcoin outflows reflect this trend as much as anything else. As volume shifts from markets quoted in Bitcoin to markets quoted in Tether, exchange wallet balances follow suit.

Bank of America claimed last month that the recent increase in crypto outflows from exchanges and stablecoin net inflows indicate "bullish" market momentum. The bank went so far as to say that "fading sell pressure" has now turned to "buying." Outflow is commonly interpreted as a bullish signal because investors typically remove assets from exchanges when they are only interested in holding the asset (rather than selling).

Uptick in Stablecoins

Last month, the top four stablecoins (USDT, USDC, BUSD, and DAI) saw $1.4 billion in net inflows in three weeks.

In contrast to inflows from volatile cryptocurrencies such as Bitcoin or Ethereum, inflows from stablecoins could be interpreted as bullish. This difference is because the arrival of stable, dollar-pegged assets on an exchange indicates that investors are entering the market to buy. Stablecoin inflows and outflows have alternated over the last months, with the most recent noticeable surge in outflows of $437 million occurring at the end of June and the beginning of July.

How to Track Outflow

One of the ways to track Outflow is to use available tools for that or regular reports from a trusted source. An alternative to that is manual tracking which involves locating an exchange wallet on a block explorer and using the built-in capabilities to analyze the balances of that wallet to track inflows and outflows from an exchange. If an exchange wallet's reserves are depleted, more people withdraw, and there is an outflow.

Withdraw cryptocurrency from your exchange and copy the address that receives the cryptocurrency to locate an exchange wallet. Assume you want to track down an Ethereum address. You can enter it into Etherscan's search bar and then scroll down to "Analytics":

The analytics showed when the ETH reserves for that exchange wallet reached their peak and when they were depleted. It also displayed information such as when the exchange had the most reserves. As a security measure, this exchange switched wallets and emptied that wallet.

Users can use block explorers to instantly track Ethereum and Bitcoin inflows when a wallet is active. Bitcoin also has block explorers, which allow users to track the inflow of Bitcoin money on the public blockchain ledger.

Conclusion

Outflows are essential indicators in the crypto market. They form the basis of understanding how liquidity affects Bitcoin's price. With this knowledge, traders can begin analyzing cryptocurrency transactions and forecasting price movements based on momentum. Outflows are large batches of transactions that occur when Bitcoin is withdrawn from exchanges, whereas outflows are transactions that occur when Bitcoin is deposited. Either one can predict when the price will rise or fall.

Traders can appropriately long or short the market using tools that measure collective inflows and outflows from exchanges. Bitcoin and Ethereum data are the most important because they account for more than half of the total crypto market, and their price movements impact the entire crypto market.

Author: Gate.io Observer: M. Olatunji
* This article represents only the views of the observers and does not constitute any investment suggestions.
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