Despite the historic launch of spot bitcoin exchange-traded funds (ETFs) led by industry giants BlackRock and Fidelity, which are among the top five ETF launches in their first month of all time, the response of btc prices has been notably moderate. Prior to the release of these EFTs, btc skyrocketed to a high of $49,040 on January 11.
Fast forward to today, btc is currently settling at $51,000, marking a modest 4.3% appreciation. This tepid performance has baffled market observers, particularly in light of the massive net inflows of $5.278 billion into all bitcoin ETFs in a span of just six weeks. These could have been even significantly higher if there had been $7.398 billion in GBTC outflows from Grayscale.
The explosive discovery
However, CryptoQuant CEO Ki Young Ju may now have found the “real” reason that has had an even bigger impact on bitcoin price action in recent weeks. Ju's analysis highlights the transfer of more than 700,000 btc to over-the-counter (OTC) counters used primarily by miners in the weeks following bitcoin ETF spot approvals, an equivalent of approximately $35.6 billion at current prices.
Shared the following picture and fixed: “700,000 btc have moved to OTC desks used by miners over the past three weeks following the timely approval of the bitcoin ETF.” This revelation has prompted a reassessment of the impact of such substantial transfers on bitcoin market dynamics.
Ju later slightly corrected his statement and explained, “I have some questions about the accuracy of the data. These OTC addresses are not only used by miners. It could be used by other whales. We will let you know which addresses caused this increase,” recognizing the complexity and multifaceted nature of these transactions.
bitcoin OTC Mechanism Explained
OTC desks facilitate direct transactions between two parties, unlike open exchanges where orders are matched between multiple participants. This trading method can handle large volumes of bitcoin without immediately affecting the market price.
When substantial amounts of btc are bought or sold on public exchanges, the sudden increase in supply or demand can cause significant price volatility. By opting for OTC transactions, large buyers, such as ETF issuers, can accumulate bitcoin in large quantities without causing a sharp price increase that would inevitably occur if these purchases were made in spot markets.
Therefore, Ju theorizes that the issuers behind the recently launched bitcoin ETFs are strategically purchasing bitcoin through OTC counters. This approach serves a dual purpose: it allows these entities to meet ETF investor demand by securing enough bitcoin to back the ETF shares, and at the same time mitigates the immediate price impact that such large-scale purchases would have. if they were carried out in open bags.
The essence of Ju's claim is that if the 700,000 btc had been purchased on the spot market rather than through OTC channels, the influx of demand would likely have driven the price of bitcoin significantly above the observed 4.3 increase. %. Therefore, this moderate price action could be attributed to the strategic use of OTC transactions by ETF issuers and other large-scale buyers.
However, there is also a positive side. What will happen if miners can only sell half of the current supply after the next btc halving in April, but demand remains? Furthermore, this restriction is not limited to miners only.
Given that OTC supply is finite and will likely run out quickly, it seems inevitable that a supply shock could hit the market once OTC reserves are completely depleted. When entities like BlackRock and others are forced to buy bitcoin on the open market to back their ETFs, the price of btc could react quickly.
At the time of publication, btc was trading at $51,030.
Featured image created with DALL·E, chart from TradingView.com
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