Whales Start to Accumulate, Institutional Interest Recovers – Will Q3 Bring Positive Changes?

Recently, the crypto community has been abuzz with discussions about two developments: first, traditional venture capital firms and major institutions entering the Bitcoin and DeFi ecosystems, ending a 5-week streak of outflows from crypto investment funds and products; second, whales have begun to accumulate Bitcoin , with Bitcoin reserves on exchanges hitting recent lows. In the face of positive news and data indicators, sentiments such as "Bitcoin prices are nearing a bottom" and "the market is undervalued" have started to emerge.

On the other hand, last Friday's release of the U.S. June non-farm payrolls data showed employment numbers exceeding expectations, raising expectations that the Federal Reserve will soon begin discussing tapering bond purchases. Previously, with inflation data running hot, the Fed had signaled a "hawkish" stance. Based on this, the market anticipates the Fed will very likely discuss tapering at upcoming FOMC meetings. Tapering bond purchases and subsequent rate hikes would lead to dollar appreciation and capital inflows, increased borrowing costs for banks, and consequently reduced liquidity in crypto markets, potentially delivering a blow to the market.

The latest Glassnode weekly report reveals that Bitcoin's issuance rate once dropped to a historic low of 0.71%, pushing Bitcoin's S2F (stock-to-flow ) ratio to 140, compared to gold's 59, making Bitcoin appear more scarce, though this is largely symbolic. Due to the sharp decline in hashrate, Bitcoin mining difficulty has been consecutively adjusted downward, causing recent surges in profitability for online miners.

Looking at quarterly data, OKX data shows that Bitcoin closed Q2 at $34,195.0, down 42.32%, forming a stark contrast with Q1 when Bitcoin closed at $59,286.3, up 105.99%. This marks Bitcoin's worst performance since Q4 2018's 43.17% decline.

Q2 Crypto Decline Dampens Bullish Sentiment, Whales Begin Accumulating

Throughout Q2, markets focused on observing the U.S. economic recovery. The Fed's delay in tapering despite high inflation reflects its prioritization of employment over inflation stabilization. After last Friday's non-farm payrolls release, the U.S. added 850,000 jobs last month – better than expected growth following two months of sluggish expansion, indicating some economic progress. However, the unemployment rate edged up to 5.9%, higher than May, suggesting the Fed may need more patient waiting before adjusting monetary policy.

At 2:00 AM tomorrow, the Fed will release last month's FOMC meeting minutes, potentially providing more clues on when and how tapering will begin. As we enter Q3, when the Fed will pivot policy remains a critical question for global economic and market trends.

Bitcoin's Q2 decline of 42.32% delivered its worst performance since Q4 2018, ranking as the third-worst quarterly drop in Bitcoin's 13-year history. However, the crypto market decline wasn't a universal phenomenon across global financial markets. Over the same period, the S&P 500 rose 7.63%, the Nasdaq gained 8.12%, the Dow added 4.38%, and even gold increased 3.66%. This suggests that compared to previous months, Bitcoin's short-term speculative fervor has faded. Continued price declines have further dampened bullish sentiment and accelerated the shift in investor risk appetite.

Yet compared to the overwhelming negative news previously, two relatively positive factors have emerged in recent markets. One is the significant increase in Bitcoin whale holdings, with a substantial rise in entities controlling multiple Bitcoin addresses.

On July 4, analytics platform Santiment reported that whale addresses holding 100 to 10,000 Bitcoin accumulated 60,000 Bitcoin in a single day – the largest single-day accumulation in 2021. These addresses hold 9.12 million Bitcoin total, representing 48.64% of Bitcoin's circulating supply, an increase of 100,000 from six weeks ago.

Some users questioned Santiment's data on whales holding 100-10,000 Bitcoin, noting that while this cohort was accumulating, whales holding 10,000-100,000 Bitcoin were reducing positions. Santiment replied that the 100-10,000 Bitcoin whale cohort, after studying the relationship between different holding groups and market movements, offers the most leading guidance on price trends, making it their most closely watched segment.

Price Trend

Previously, veteran crypto analyst Willy Woo shared two Glassnode charts on Twitter. The first chart shows Bitcoin supply held by whales (1,000-10,000 Bitcoin wallet owners) rising sharply.

BTC - Supply Held by Entities with Balance 1k - 10k

The second chart shows a significant increase in Bitcoin entity users, reaching a historic high for 2021. Entity users refer to the same network entity controlling a group of addresses, identified through advanced heuristics and Glassnode's proprietary clustering algorithms.

Entities Net Growth

Wealthy investors returning to the market is clearly a positive sign. From Willy Woo's first chart, we can see that in the 5 months leading up to February 2021, whale holdings and Bitcoin prices rose in tandem, indicating whale accumulation played an important role in Bitcoin's price growth. In subsequent months, whales became sellers, and by early May their Bitcoin reserves had dropped 8% to 4.17 million Bitcoin. During this period, Bitcoin prices ranged between $50,000-$60,000, except for a brief spike to $64,846.9 in mid-April following Coinbase's listing. The market otherwise showed signs of buyers unable to absorb selling pressure, foreshadowing the price correction.

OKX data shows Bitcoin fell 35.31% in May, touching a historical low of $29,000, then declined further to $28,808 in June before quickly recovering above $30,000. As holders of 1,000-10,000 Bitcoin resume accumulation, it may signal Bitcoin has bottomed.

Another data point corroborating whale accumulation is Bitcoin reserves on exchanges. After declining from 15.12% on September 10 last year to 13.18% on April 19 this year, reserves rebounded to 13.93% by May 19, but have recently shown net outflow trends again, falling back to 13.72%.

Percent Balance on Exchanges

Traditional VCs and Institutions Enter – Are New Crypto Market Opportunities Brewing?

Beyond crypto whales accumulating Bitcoin, another phenomenon is traditional VCs entering the crypto space. On June 24, Andreessen Horowitz (a16z) announced a $2.2 billion cryptocurrency fund. The VC giant already manages $865 million through two earlier funds, and with the new fund, its crypto assets under management exceeds $3 billion.

On June 29, news emerged that Germany's new Fund Positioning Act would take effect July 1, allowing domestic special funds to allocate up to 20% of their portfolios to Bitcoin and other crypto assets. Sven Hildebrandt, CEO of Germany-based Distributed Ledger Consulting (DLC), believes this could bring approximately €350 billion (~$415 billion) of inflow potential to crypto markets – one-fifth of €1.87 trillion in assets.

The following day, U.S. enterprise payment company NCR partnered with New York Digital Investment Group (NYDIG). Community banks including First Citizens Bank of North Carolina and credit unions like California's Bay Federal Credit Union will be able to offer cryptocurrency trading to customers through mobile apps developed by the payment provider. Through this partnership, 650 U.S. banks will soon be able to provide Bitcoin trading services to approximately 24 million customers.

Back in late March, Soros Fund Management CIO Dawn Fitzpatrick stated in an interview that the U.S. economy had paved the way for a key Bitcoin inflection point, and the company had already invested in multiple companies providing crypto infrastructure, such as exchanges, asset management firms, and wallets . On July 1, sources revealed that Fitzpatrick recently greenlighted active trading of Bitcoin and other crypto assets internally.

On July 5, blockchain gaming and NFT developer Animoca Brands announced a $50 million funding round, with Blue Pool Capital among the investors. Blue Pool Capital is the family wealth management fund of Jack Ma and Joe Tsai. This investment marks Blue Pool Capital's second publicly disclosed investment this year after a nearly 3-year hiatus, and its first foray into blockchain.

Yesterday, sources revealed that Marshall Wace, a $55 billion hedge fund, will invest in blockchain technology, cryptocurrency payment systems, and stablecoins, potentially including direct participation in crypto assets trading . The group will launch a portfolio to acquire stakes in late-stage private digital finance companies. Additionally, sources indicate the company has been recruiting in the crypto assets space. While the new business is in early stages, rapid expansion is planned. Marshall Wace is still in discussions with potential investors, with launch size yet to be determined. Stablecoin infrastructure appears to be a particular focus – in late May, Circle (USDC developer) completed a $440 million funding round, with Marshall Wace among the investors.

From these recent news items, it's clear that traditional institutions' interest in the crypto world has revived, with re-entry occurring mainly through two methods: direct participation in trading and investing in crypto assets like Bitcoin and Ethereum, or investing in blockchain companies across sectors like DeFi, stablecoins , and NFTs.

However, perhaps due to the recency of these developments, on-chain metrics and some exchange data haven't yet clearly reflected changes from new institutional entry. CME Bitcoin futures data shows declining institutional demand for derivatives. Leveraged funds (red line) hold net short positions in Bitcoin futures at their lowest levels since last September. According to CFTC data for the week of June 29, leveraged funds held 10,000 net short contracts, down from approximately 30,000 in December. This may relate to closing GBTC positions during unlock windows without increasing trading amid persistent negative premiums.

CME Bitcoin Futures Net OI

CoinShares' July 5 weekly report noted that after 5 consecutive weeks of outflows, crypto asset investment funds and products saw inflows. Approximately $63 million flowed into cryptocurrency funds last week, indicating that despite significant market corrections, institutional investors are turning bullish again.

Weekly Crypto Asset Flows

However, an Arcane Research report shows Bitcoin daily trading volume at major spot exchanges has dropped to 2021 lows. The 7-day average of Bitcoin daily trading volume matches mid-December 2020 levels. Recent on-chain activity remains relatively subdued, with USD-denominated Bitcoin transfer volume falling to December 2020-January 2021 levels at $236 million/day.

BTC ETH

On-chain metrics and major news give us the sense that the market has both changed completely and not at all – after all, change always happens silently. Since investment is a game of probabilities, all we can do is capture, analyze, and deconstruct fundamental and technical information to improve our investment success rate.

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