‘Dormant Supply Spike’ Could Drive Bitcoin Prices Higher
The summer rally in stocks and bonds has run out of steam as fears of recession begin to spill over into financial markets. Bitcoin has been tracking traditional assets lately and fell below $20,000 after its own summer rally above $25,000.
Digital currencies have trailed stocks and bonds in decline for most of 2022, departing from their status as uncorrelated assets. All eyes will continue to be on the central bank’s strategy as the Federal Reserve looks to continue tightening monetary policy to guide the economy to a soft landing.
However, one metric that could portend a future bitcoin price rally is dormant supply spikes. Independent research has shown that bitcoin has tended to experience price spikes after the percentage of circulating supply has been idle for at least a year.
By a CoinDesk Report explaining this metric, this was last observed on January 16th. The dormant circulating supply percentage peaked and was then followed by a massive surge as bitcoin surged from $450 to $20,000.
“Dormant supply peaks are springboards for higher price action,” Nik Bhatia, author of “Layered currency: from gold and dollars to bitcoin and central bank digital currencies” and market analyst Joe Consorti said in the Bitcoin Layer newsletter.
“If two-thirds of bitcoin is out of the market (not for sale) for an extremely long period, the price will rise as more buyers enter the market for a finite supply – a scenario that has played out twice in bitcoin before,” Bhatia added.
Gaining Bitcoin Exposure Through Futures
If investors have bullish notions of bitcoin’s price for the duration of 2022 and beyond, they may look to gain exposure via futures contracts rather than the actual cryptocurrency. Whether for strategic exposure to bitcoin or simply to gain portfolio diversification in the leading digital currency, exchange-traded funds (ETFs) that focus on bitcoin can provide that alternative.
As an option to place bitcoin on a public market, investors can also opt for bitcoin futures exposure through the ProShares Bitcoin ETF (BITO). With cryptocurrency regulation still in its infancy, BITO will allow investors to gain exposure to bitcoin on a traditional exchange, reducing the risk of a public exchange failing.
Additionally, BITO is actively managed, providing investors with dynamic exposure to the bitcoin futures market. This puts portfolio management in the hands of market professionals who can increase or decrease contract exposure, given the current nature of the ever-changing and volatile crypto market.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.