Crypto investors are increasingly accumulating and holding digital assets, particularly Bitcoin, in anticipation of the upcoming US Consumer Price Index (CPI) data release.
Market indicators suggest a shift towards accumulation, driven by investor sentiment and the potential implications of the CPI data on the crypto market.
On-Chain Data Reveals Renewed Investor Confidence in Bitcoin
A recent report from Glassnode highlighted a clear trend among crypto investors as the market recovers from last week’s sell-off. Despite prevailing uncertainty, many investors increasingly hold digital assets, especially Bitcoin. This behavior is evident in on-chain data, showing a significant shift towards accumulation, particularly among large wallet holders, often linked to institutional investors.
Since Bitcoin reached its all-time high in March, the market has experienced an extended period of supply distribution. However, this trend appears to be reversing, especially among the largest wallets. The Accumulation Trend Score (ATS) supports this observation, showing a return to accumulation-dominant behavior with its highest possible value of 1.0 in the past month.
Long-Term Holders (LTH) played a crucial role during the run-up to the ATH, and after a period of heavy divestment, they are now returning to a preference for holding. This trend is evident, with over 374,000 BTC migrating into LTH status over the last three months.
“From this, we can infer that the propensity for investors to hold onto their coins is now a larger force relative to their spending pressures,” analysts at Glassnode explained.
The 7-day change in LTH supply provides additional insight. Following substantial distribution during the March ATH, recent data shows a return to positive territory, with LTHs now favoring accumulation over selling.
Despite aggressive distribution from April to July, Bitcoin’s spot price remains above the Active Investor Cost Basis. This condition signals investor optimism for positive market momentum in the short-to-medium term.
Rate Cut Hopes and Regulatory Tailwinds Fuel Optimism
BeInCrypto reported that last week, the crypto market experienced significant turmoil, with the liquidation amount reaching $1.06 billion within 24 hours. Experts attributed this downturn to weak US economic data and geopolitical risks.
However, Bitcoin and other cryptocurrencies showed a remarkable recovery the following day. At the time of writing, Bitcoin is trading at $60,806, representing a 2.5% increase in the last 24 hours. In a broader context, the total crypto market capitalization stands at $2.23 trillion, up by 2.4% over the same period.
Analysts suggest that the Federal Reserve’s anticipated rate cut could sustain the market’s upward momentum. A memo from QCP Capital emphasized the influence of inflation on Bitcoin, noting its diminishing significance as the focus shifts to potential rate cuts.
Analysts at 10x Research also noted that Bitcoin’s direction has historically been closely tied to inflation trends, with the asset typically rallying when inflation decreases. However, recent CPI releases suggest that this pattern may not always hold.
“In anticipation of a drop in inflation, we are witnessing short-covering in both Bitcoin and Ethereum. […] However, this recent rally appears to be yet another bear market rebound, as underlying fundamentals remain weak,” they noted.
Despite short-term volatility, analysts maintain a positive outlook for Bitcoin in the longer term. In addition to the expected rate cuts, other potential catalysts for a bullish trajectory include continued inflows into Bitcoin exchange-traded products (ETFs) and regulatory tailwinds.
“The 12-month outlook for Bitcoin is one of the most bullish I’ve seen. With inflows into Bitcoin ETPs, regulatory clarity, and expected rate cuts, Bitcoin could emerge as a superior long-term hedge,” Juan Leon, senior investment strategist at Bitwise, remarked.
Notably, since January, inflows into Bitcoin ETFs have exceeded $17 billion, contributing to the asset’s all-time high earlier this year. With major financial institutions like Morgan Stanley approving Bitcoin ETFs, the trend is expected to continue, further supporting Bitcoin’s price. Additionally, significant progress in crypto-friendly legislation in the US and growing political support suggest a favorable environment for further adoption and price appreciation.