Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

After an underwhelming September, Bitcoin has entered October with a strong recovery. Positive trends in digital asset accumulation and Bitcoin exchange outflows further points to a sharp rally.

Digital Asset Inflows Positive For The 7th Week in a Row

When we want to get an overview of where an asset’s price is going, it is always prudent to combine both fundamental and technical analysis. Bitcoin’s fundamentals are quite clear. The more that central banks engage in money printing, the potential for devaluing fiat currency increases, and deflationary assets like Bitcoin appear that they will increase.

Such a fundamental then translates to a technical indicator. One of them is the investment inflow. Courtesy of the new CoinShares Report for October 4 2021, we see that digital asset inflows are on an upward course correction. This marks a potential turning point from bearish to bullish, with the last week of September closing with $90 million of inflows.

image credit: CoinShares

As you can see on the chart above, the last seven weeks were net positive for investor inflows, accumulating to a total of $411 million. Bitcoin remains the dominant investment opportunity, making up 76% of total digital assets over the last week. Ethereum, the second-largest cryptocurrency, had ceded its market share to Bitcoin by 3%, reaching an inflow of $20 million.

As for altcoins, only Cardano managed to pull in over one million USD. Solana is holding strong with $98 million AUM (assets under management), while Binance makes up 3% of Ethereum’s AUM of $14.1 billion.

image credit: CoinShares

Overall, there is still a long way to go for a complete recovery after May’s market crash. Just prior to the crash, volumes were at $8.4 billion — compared to last week’s volumes at $2.4 billion, this resulted in a 250% decline. Yesterday, when we explored the impact of Bitcoin ETFs on price, in particular GBTC, we noted it is by far the largest institutional crypto whale.

The CoinShares report confirms this, as Grayscale Investments holds $41.1 billion worth of crypto assets, making up the majority of all digital asset investments.

image credit: CoinShares

Increased investment confidence resulting in consecutive inflows into digital assets is not that surprising given the soaring levels of inflation. Moreover, after Jerome Powell, the Federal Reserve Chair, stated there is no plan to ban cryptocurrencies during the Oversight of the Treasury Department’s and Federal Reserve’s Pandemic Response hearing, we will likely see a renewed inflow accumulation.

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Bitcoin Exchange Inflows/Outflows

To understand the shifting crypto winds, we must take into account another metric — Bitcoin exchange inflows and outflows. Outflows represent Bitcoin withdrawals from exchanges into private/institutional wallets, while inflows are transfers to exchanges from private/institutional wallets.

The inverse relationship between BTC price and its exchange supply, image credit: CryptoQuant

When observing these flows, it logically follows that an inflow would imply a selloff and subsequent bearish momentum, while an outflow would imply buyoffs, signing a bullish turn. Since July, The Tokenist has been reporting on the steady outflow of BTC from exchanges — around 2k BTC per day.

Moreover, BTC left exchanges at record-low levels of 13.2% in August. Correspondingly, if there is so much BTC going out, this would inevitably create a supply shock. After all, if there is less of something, its price would rise higher when people try to buy it due to supply and demand.

30-day net position change indicated Bitcoin supply shock, image credit: Glassnode

Mathematically, a supply shock is the unavailable BTC supply divided by the available BTC supply. A month ago, some conservative estimates placed Bitcoin price above $55k due to the incoming supply shock.

Moreover, the months-long low levels of BTC on exchanges indicate that more people are holding. If BTC price continues to remain steady at $50k, this would be the first obstacle to overcome before another bull run.

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Bitcoin Decouples from the Stock Market

Lastly, it is worth noting that Bitcoin’s price performance decoupled from the stock market, specifically, the S&P 500 Index.

BTC vs. S&P 500 ETF, 5-day period saw BTC outperform SPY by 12%, image credit: TradingView

Historically, the stock market doesn’t do well in October, just as Bitcoin doesn’t do well in September. Furthermore, the recent social media outages (Facebook, WhatsApp, Instagram) accelerated the decoupling further after Facebook saw its share price dip by around 5%. Likewise, as the stock market has declined this month so far, we have seen assets that are deemed as stores of value, such as Bitcoin, increase.

Amid fears of inflation, the Fed’s questionable competence, China’s Evergrande fallout, and disrupted supply chains, Bitcoin seems to be being accumulated as a safe haven asset like gold is.

Do you think it is too much to expect Bitcoin to hit $100k by the year’s end, or too little? Let us know in the comments below.

About the author

Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird’s US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.

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