BITCOIN INVESTING
The first two months of 2021 saw the relationship between the two parameters flip in Bitcoin, as ‘normalcy’ returned in March
Another All-time high for the premier digital currency dictates that the euphoric momentum is not fading anytime soon. Bitcoin charted an ATH of over $61k. However, this time around the correction was much less pronounced than the last time it hit a high of over $58k. Just over 10% correction was quickly being reversed at the time of writing with BTC trading around $58.3k. But then again, nothing is definitive in the Cryptoverse and things can change really quickly, as we have seen on countless occasions before.
Meanwhile, mainstream adoption new continued to hit the wires. I would like to mention about two announcements that could have a profound impact on further institutional investment flowing through to the Cryptos. The first one was from Grayscale Investments, the world’s largest digital asset manager, announcing five news trust offerings — Chainlink’s link token (LINK), Brave Browser’s brave token (BAT), decentralized data storage provider Filecoin’s file (FILE), decentralized video streaming network Livepeer (LPT) & MANA, the money for virtual world Decentraland.
The move is reportedly aimed at drawing institutional money to the red hot DeFi market. Grayscale is also planning to introduce similar trusts for Aave, Cosmos, Polkadot, Monero & Cardano in the coming days. On the other side of the spectrum, Morgan Stanley became the first big U.S bank to offer its wealthy clients access to bitcoin funds.
According to the internal memo sent out to banks’ financial advisors, who have at least $2 million in assets held by the firm will be eligible for the opportunity. For the funds —two of them are from a crypto firm Galaxy Digital, while the third is a joint effort from asset manager FS Investments and bitcoin company NYDIG.
Moving on, today we will be looking at the relationship between Bitcoin inflows to exchanges and USD bitcoin price volatility. According to the Chainalysis Market Intel, Bitcoin inflows to exchanges are at historical lows and price volatility is high. As the left chart above suggests, inflows to exchanges have only been as low as they are now in Q4 of 2018 and Q4 of 2019, when the bitcoin price was slowly declining.
The difference between now and then, however, is that Price volatility was also low at those times, whereas now price volatility is high. The flipping of current price volatility and moving in the opposite direction to inflows suggests that it may be driven by rapid changes in demand, rather than the supply of bitcoin available to buy.
Taking a little more microscopic view of the relationship for the past 12 months, we see that bitcoin exchange inflows have typically trended with USD bitcoin price volatility, as shown in the right chart above. This trend reversed in January and February 2021, when exchange inflows decreased but price volatility kept on rising.
However, with the onset of March, things seem to have returned to the previous normal — both price volatility and exchange inflows are now decreasing. Making sense of this reversal and re-reversal may be a little more complicated since Cryptoverse is prone to extreme events, constantly changing fundamentals & new narratives emerging.
One thing is for sure, the Crypto market has changed a lot in the last few months & although the normal relationship between bitcoin inflows & price volatility might have resumed, continued speculative demand might keep the price volatility higher for a while.
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Source: https://medium.com/technicity/why-did-the-btc-trend-between-inflows-price-volatility-reverse-3f528e9ca1af?source=rss——-8—————–cryptocurrency
