Market Wrap: Bitcoin Near $56K, Struggles With Flat Activity on Exchanges

Bitcoin entered the week seeking a direction, with subdued trading volume and exchange inflows continuing to drop.

“There's not much action, and prices have been stable around the $56,000-$58,000 mark,” Alessandro Andreotti, an over-the-counter (OTC) bitcoin broker, told CoinDesk.

As of March 21, there were fewer than 2.44 million BTC available on exchanges, the lowest amount since August 2018, according to blockchain analytics firm Glassnode.

The decreased bitcoin balances on exchanges have been seen as a bullish sign – that fewer holders are preparing to take profits or dump the cryptocurrency, suggesting minimum selling pressure in the near future, as CoinDesk reported previously.

As bitcoin’s inflow to exchanges continues to decrease, it also suggests that price volatility, which has remained high, is mostly driven by “speculative demand” rather than any fundamental factors, Philip Gradwell, chief economist at blockchain analysis firm Chainalysis, wrote in his newsletter on March 19.

At press time, the oldest cryptocurrency is changing hands at $55,772.02, according to CoinDesk 20 data, down 2.98% in the past 24 hours. The sudden price drop to as low as $55,685.09 in the past few hours came after U.S. Federal Reserve Chair Jerome Powell Jerome Powell said cryptocurrencies are "not really useful stores of value" during a virtual panel discussion on digital banking hosted by the Bank for International Settlements.

Andreotti also argued the frenzy in non-fungible tokens (NFTs) has caused a huge distraction, especially given the heavy media coverage.

“The focus has shifted almost entirely on NFTs.” he said. “That’s where all the attention is at the moment.”

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Ether (ETH) was down on Monday, trading around $1,744.03 and slipping 2.85% in 24 hours as of 20:00 UTC (4:00 p.m. ET).

The ether-to-bitcoin price ratio, currently at around 0.03, within the rough 0.02-0.04 range since late 2018, suggests ether is still largely tied with bitcoin’s price performance. 

Some, however, think ether’s price will soon benefit from the rapid growth in NFTs and decentralized finance (DeFi), if it hasn't already.

Compared with bitcoin, “ether seems to be solidifying itself as the bellwether on smart contract activity and is subject to more diverse narratives, like demand for DeFi [and] NFTs,” said Stefan Coolican, chief financial officer of investment firm Ether Capital. “It could be that ether is taking a bitcoin-like role with respect to other smart contract platform tokens and has decoupled from bitcoin in the sense of being an ‘alt’ to bitcoin.”

Read more: ‘Altcoin Season’ Leaves Some Bitcoin Alternatives Frozen

Coolican suggested the elevated gas prices on Ethereum (gas is the cost for miners to execute transactions) is the main reason the white-hot NFT and DeFi sectors, which both are largely based on Ethereum blockchain, have not boosted ether’s price.

The total value locked in DeFi currently stands at $43.6 billion, according to DeFi Pulse. The amount has more than doubled from the beginning of the year. NBA Top Shot, the biggest marketplace for NFTs trading, saw its trading volume double in the past 30 days, data from DappRadar shows.

It is “really tough to pinpoint one factor on Ethereum since there is so much going on,” Coolican added.

Digital assets on the CoinDesk 20 are mostly in red Monday. Notable winners as of 20:00 UTC (4:00 p.m. ET):

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