How this global crypto exchange indicator is bullish for Bitcoin

An increasing number of crypto investors may be looking to hold onto their digital assets rather than trade them

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The Bitcoin (CRYTPO: BTC) price is down 4% since this time yesterday, currently at US$38,173 (AU$51,585).

The world’s biggest crypto by market capitalisation managed to breach the psychologically important US$40,000 level again over the past 24 hours, trading as high as US$40,460. But it again failed to hold onto those gains.

Despite another slide, Bitcoin remains up 3% over the past week.

And crypto enthusiasts are eyeing potentially higher prices ahead, according to Simon Peters, market analyst and crypto expert at global online trading platform eToro.

Why these outflows could indicate improved sentiment

Peters notes that:

The crypto asset market is giving off bullish sentiment indicators at the moment. Bitcoin exchanges have seen massive outflows in balances, according to Glassnode, to the lowest levels since winter 2018.

So why are outflows a positive sign for Bitcoin?

“Such a move is usually seen as a bullish indicator as it shows investors are preferring to hold their BTC off exchange or invested elsewhere, rather than sit ready to be traded away,” says Peters.

If you’re unfamiliar with cryptos, you can think of exchanges as the debit and credit parts of your cash holdings. Those are ready to be used at any time. Pulling cryptos off exchanges is somewhat like taking your cash out of your bank account and storing it in a vault. It’s still there to be used, just not as readily.

Sounding a note of caution on Bitcoin’s price trajectory, however, Peters added:

The positive sentiment comes with a caveat, as crypto investors will be watching the progress of the bipartisan infrastructure bill passing through the US Congress at the moment. The bill currently has provision to tax crypto asset investment profits in the US to the tune of $28 billion.

Any move by the world’s biggest economy to slap a hefty tax on crypto profits could see a wave of selling before the law comes into effect.

How has Bitcoin performed this year compared to Ethereum?

Bitcoin was on a tear through the early months of 2021. It reached a record high of US$64,829 on 16 April. Though the token has lost 41% of its value since that peak, it remains up 31% year-to-date.

Ethereum (CRYTPO: ETH), the world’s second biggest crypto by market capitalisation, has also had a wild year. Ether hit its own all-time high of US$4,383 on 12 May. At the current price of US$2,477, Ether has lost 43% since that record high.

Year-to-date, however, Ether’s price gain of 243% still far outpaces Bitcoin.

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Bitcoin and Ethereum. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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