First Mover: Bitcoin Attracting More Buyers, Even With Market Stuck in 'Extreme Fear'

Bitcoiners are abuzz over new data showing more people might be tiptoeing into the market. 

Mass adoption has long been one of the main bullish investment theses for bitcoin. The bet is growing numbers of institutions and individuals will eventually come to understand the cryptocurrency's virtues, from its potential use as a peer-to-peer payment system to its potential as a hedge against inflation, like a digital version of gold. As the newbies pile in, prices will soar, the theory goes. 

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Brian Armstrong, CEO of the major cryptocurrency exchange Coinbase, tweeted last week the frequency of deposits in the amount of $1,200 had jumped – a hint some recipients of coronavirus relief checks from the U.S. government might even be using the funds to buy cryptocurrencies. 

The following chart from CoinDesk Research (using data from Coin Metrics) also shows a surge in addresses holding less than a billionth of the total supply of bitcoin, or those holding roughly $130 or less at current price levels.

Any increase in bitcoin's popularity among retail investors might dovetail with signals that institutional investors are getting into the market, too. Renaissance Technologies, one of the world's biggest hedge funds with $166 billion under management, said in a regulatory filing that its market-beating Medallion fund can now trade bitcoin futures on CME Group's Chicago Mercantile Exchange.     

And last week, cryptocurrency-focused investment firm Grayscale said it raised $503.7 million in the first quarter, nearly double the previous quarterly high. The firm, which is controlled by Digital Currency Group, CoinDesk's parent company, said in a public report that "despite the risk asset drawdown this quarter," investors are "increasing their digital-asset exposure." 

Mike Alfred, CEO of cryptocurrency analytics firm Digital Assets Data, told CoinDesk's Omkar Godbole last week that the unprecedented money injections by the Federal Reserve and other central banks have "pushed many people toward bitcoin as an alternative monetary system." 

"We are hearing and seeing increased retail interest," he said. 

Zac Prince, founder and CEO of the cryptocurrency lender BlockFi, noted in a tweet last week the industry is "still early in our adoption cycle within just our first addressable market of crypto investors, estimated to be low single digit millions just in the U.S." 

In an April 16 report, Arcane Research, a Norwegian cryptocurrency analysis firm, wrote that the number of addresses holding more than 0.01 bitcoin (about $72 at current prices) has climbed by about 5 percent just since March 1, to a new record of 8.3 million.

Arcane, which cited the data provider Glassnode, wrote that the trend might be due to big bitcoin investors – known as "whales" in crypto-speak – using so-called mixing services to move their digital assets, essentially splitting their holdings into multiple, smaller accounts. 

But it might also be a "sign of increased user adoption of bitcoin," the researchers wrote. 

Ki Young Ju, CEO of the Korean cryptocurrency-analytics firm CryptoQuant, noted in a Telegram message the number of unspent transaction outputs recorded on the bitcoin blockchain, known as UTXOs, has also increased. 

That could represent a "small-scale wallets including personal wallets (mass adoption) and mixing activities," he wrote. 

What's interesting is that Alternative.me's closely tracked "Fear & Greed Index" has been pointing to "extreme fear" since March 9, a five-week period that's now the longest since the gauge launched in February 2018, according to Arcane. 

So if that's the backdrop for greater mass adoption of cryptocurrencies, bitcoiners are eager to see how cryptocurrency markets react when the gauge turns toward greed – or even extreme greed. 

Trend: Bitcoin appears on track to test the psychological hurdle of $8,000, having found acceptance above key hurdle last week. 

"$8,000 test is getting more likely now," tweeted popular trader @CryptoCapo_. The bullish view could be attributed with a recent breakout on the weekly chart. 

The cryptocurrency closed last week (UTC) above the horizontal 100-week average resistance, which had consistently capped upside in the preceding four weeks. The breakout, coupled with a bullish higher-lows and higher-highs setup on the daily chart, suggest scope for an extension of the ongoing rally from the March low of $3,856. 

Exchange activity, too, supports further gains in the short term. For instance, the seven-day moving average of bitcoin balances on cryptocurrency exchanges has declined 2,398,881 on Sunday, according to Glassnode data, likely signaling a shift to holding strategies. Investors usually withdraw coins from the exchanges to hold in their personal wallets when prices are expected to rise. 

While the path of least resistance appears to be on the higher side, the possibility of a sudden move lower cannot be ruled out. Some observers believe selling pressure from miners is currently high and could increase further in the coming months as the top cryptocurrency is set to undergo its mining reward halving, a 50 percent reduction in block rewards, next month.

"We expect the miners to follow a cycle of decreased profit margins, increased selling, capitulation and a culling of the least efficient miners from the network," crypto asset analytics company Coin Metrics, stated in its recent “State of the Network” report.

Further, the weekly Money Flow index, which incorporates both price and volume, is signaling a bearish mood in the market. "Either way, I'll be shorting the rally to $8,000," said trader @CryptoCapo_. 

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