Three Reasons to Tentatively Increase Your Exposure to Bitcoin

6 min read

This past year has been a tumultuous one for bitcoin investors, and as one would expect, there has been an abundance of “bitcoin is dead” headlines. However, if you look at the facts and figures, the situation isn’t as bad as the media makes it out to be. Here are three pieces of information about bitcoin that the financial media isn’t talking about!

1. Long-Term Investors Are Still In 

The cryptocurrency landscape is evolving, and despite a drop in price, Glassnode’s blockchain data reveals that an increasing number of investors are taking a long-term stance on bitcoin. Two-thirds of the total coins in circulation have not moved between wallets in 12 months or more, indicating that they have not been sold. 

Notably, this figure had climbed from 57% at the beginning of the year, back when bitcoin was almost three times more valuable than it is currently. Surprisingly, even with the recent FTX turmoil, bitcoin holders have only grown more steadfast in their investment in the asset.

Investors are not only hoarding more coins, but they also seem to be locking them away in private wallets instead of leaving them on centralized crypto exchanges, which makes the behaviour of holders even more intriguing. It’s clear they have no intention to sell – at least not anytime soon.

Investors have grown less trusting of centralized exchanges this year due to the number of them going bankrupt – and that’s understandable. Something else to remember is that institutional investors are now utilizing digital asset custody solutions that enable them to trade bitcoin on an exchange – without the coins being stored there at all.

Thanks to their advanced technology, crypto funds from institutional providers are allowing more coins to be pulled from exchanges – making it easier than ever before. In other words, the increase of these kinds of funds could be partially to thank for the coins leaving exchanges!

2. The BTC Network Continues to Grow

The ever-increasing hash rate (orange line), which is the total mining power needed to run the network, is the first indication that Bitcoin’s network is growing steadily. The higher the hash rate, the more secure the network. Despite a slight decrease in the hash rate due to the reduced price of Bitcoin, miners are still motivated to switch on their machines and earn profits in cryptocurrency.

As the chart illustrates, these massive decreases in hash rates are usually just brief, and have regularly offered great long-term entry points.

The blue line, representing the total number of wallet addresses with a bitcoin balance above zero, is steadily increasing even though bitcoin’s price is declining. 

This can be attributed to users dispersing their coins into multiple wallets or new investors buying in – though record highs in the amount of bitcoin supply untouched for a year or more likely point to the latter.

3. A Great Deal of Leverage Has Left the Building

One of the primary culprits behind Bitcoin and cryptocurrencies’ crash this year was excessive leverage in the system. When traders borrowed money from an exchange or broker to buy a dip in price, they were gambling that the price would go up; however, if the price instead kept dropping, they had to sell since their collateral couldn’t sustain the position, making small selloffs become much larger.

When it comes to excessive leverage, retail traders and even renowned funds such as Three Arrows Capital and Alameda were not spared from the repercussions. For a market to truly heal, the leverage must be completely eliminated.

This chart displays the open interest on leveraged bitcoin derivatives contacts in purple, and bitcoin’s price in white. The leverage level is near its level in January and May of 2021, suggesting that much of the over-leveraged speculation has been eliminated from the market.

What Are The Moves Here? 

In our view, Bitcoin is trading at a good value to price levels at the moment, that, of course, doesn’t mean the largest crypto in town is resilient to further drops, but, it does look like a good level to start dollar-cost-averaging in the particular crypto. 

Another strategy is to open leveraged positions (through CFD contracts for instance) let you open such positions, if you are into the logic that BTC may rally shortly, open a conservative long (with enough margin to hold your position should the extra volatility tries to take you out of the trade) and follow the developments. 

If you still want to see the positive development in the asset, hold on for a bit longer, and wait for the momentum to open further longs. 

Should you need any tips on exposure to cryptocurrencies or asset classes, please sign up to the newsletter as well as check out our other services. 

Safe Trading ❤️🇺🇦
Team of Elite CurrenSea

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