Institutions Flip Bullish on Bitcoin

GB Market Commentary 01/09/2021

by Alex Clark

Despite retracing from recent highs, there may be further gains to come for Bitcoin with data from Arcane Research suggesting that institutions are turning bullish on the asset following its recovery in the past few months. Bitcoin open interest with long positions has reached an all-time high at $165.7 million, whilst short positions have fallen dramatically to $74.1 million, indicating that institutions feel the Bitcoin price still has room to surge higher. Crucial to this rise is a recovery of Bitcoin’s trading volume which has been on the decline.

Meanwhile, Ethereum’s on chain activity is bullish, indicating the second leg of the bull run is close. The recent spike in NFT activity has prompted a rise in transaction volume and active addresses on the Ethereum network, as well as a deflationary supply. Owing to NFT activity, Ethereum fees and the amount of ETH being burnt has increased significantly meaning, at times, more ETH is being burnt than issued. As a result, for the first time ever, Ethereum’s daily issuance fell below that of Bitcoin. After surpassing $3,400, a psychologically important level, Ethereum has one last resistance barrier at the $4,078 level, where over 1.5 million addresses purchased Ether, before it rallies to a new all-time high.

Altcoins are now representing 32% of total crypto assets under management, with Cardano, Solana and Polkadot dominating. Cardano witnessed inflows of $10.1 million last week, the largest ever recorded, Solana saw inflows of $2.7 million overtaking Bitcoin Cash in terms of AUM, while Polkadot witnessed $1.5 million of inflows. Other top performers include Revain (REV) which is up 112% this week, Arweave (AR) which is up 125% and Celo (CELO) which is up 85%.

Algorand is up almost 10% today after it was announced that Koibanx, an asset tokenization and Blockchain financial infrastructure company, had signed an agreement with El Salvador to develop its blockchain infrastructure on top of Algorand’s technology. In being selected as the technology of choice for a project of this size, Algorand’s speed, scalability, stability and security are clear.

El Salvador has approved a $150 million trust fund ahead of the country’s move to make Bitcoin legal tender which is set to take effect on September 7th. This fund will be used to support the development of crypto infrastructure and services across the country. For example, $23.3 million has been earmarked to support the installation of government-backed crypto ATMs, whilst $30 million has been allocated to support the government’s $30 BTC bonus scheme, which is designed to incentivise adoption of the country’s digital wallet, Chivo. Interestingly, El Salvador’s current population is 6.5 million, which either suggests a lack of government confidence in levels of adoption or insufficient Bitcoin to go around. Either way, the crypto community will be waiting to see what happens next Tuesday.

Belarus is also endorsing crypto activities, after the president urged citizens to mine crypto rather than seek low-paying jobs overseas. The country has surplus electrical energy produced by the nuclear power plant in the Grodno region and the government passed a crypto-friendly law back in 2018 which waives crypto related taxes for five years until 2023.

Meanwhile, the US is seeking to introduce global crypto data sharing rules to combat the potential for crypto assets to be used for tax evasion. At present, due to the global nature of cryptocurrency, it is possible for users to hide assets and taxable income using offshore crypto exchanges and wallet providers, however the proposed regulation would require crypto businesses to report information about foreign account holders. Whilst the regulatory landscape is somewhat unclear at the moment, if implemented, Biden’s proposed requirements should go some way towards remedying this.