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March 10, 2021

OnChain Reaction

Bitcoin Fees in an Uptrend With ByteTree’s James Bennett


ByteTree’s James Bennett returned to analyze the latest BTC price movements. As of March 9, BTC sits at around USD 53,500.


Miner Selling Slows

(1:10) As price has consolidated between USD 40,000-50,000, miners have decreased their rate of bitcoin selling. The blue block in the chart below shows the continual trend over the past three years of the decrease in inventory, meaning less and less available bitcoin that hasn’t already hit the market.

MRI Volatility

(2:09) The below blue line shows the miner’s rolling inventory (MRI) on a six-week trend. The notable observation here is the increasing volatility, visually reflected in the movement over the past few months. The BTC price has risen to USD 58,000, yet inventories have not responded, which may be due to depleted miners’ supplies, said James.

This dynamic is a very interesting one for the market when we look at new fund inflows vs. new coins being issued.

(3:52) “There’s a limited amount of bitcoin that can ever be issued, but the market price is at the equilibrium between the new coins coming into the market and the demand for those coins — we call that excess demand,” said James.

Negative MRI

(4:11) Over the last few days we’ve seen negative MRI, i.e. dropping below 100% on the seven-day rolling average shown in the slide below. This can be tracked live on the ByteTree terminal under the ‘Featured Charts’ section. This is notable because of its impact on price, said James.

MRI Drop and European Fund Flows

The MRI drop can be attributed to European fund flow movements, noted James.

(4:57) “European fund flows [represent] money going into institutional exchange-traded products across Europe — the CoinShares XBT product and the respective 21Shares, HANetf and WisdomTree Bitcoin products. We aggregate those volumes of inflows [and] these fund flows have really strongly correlated with the increase in bitcoin price that we’ve seen over the last couple of months,” said James.

The two circles in the chart below represent the two local peaks of USD 42,000 and USD 58,000. Those peaks correlated with the surges in fund flows, James said.

European Fund Flows

(6:49) When the USD 1 trillion market cap is reached for bitcoin, the incremental new demand required to keep driving the price up gets larger and larger, noted James. This is a job for the institutions to keep the momentum in the price as opposed to retail, as the institutions have typically much bigger ticket sizes than seen through Coinbase.

(7:20) “Coinbase as of a month ago had US 90 billion of assets (of which) over USD 40 billion of those in bitcoin relate to Grayscale…So just the Grayscale bitcoin product alone makes up almost half of all Coinbase’s assets under management,” said James.

(7:53) Weighing up demand and supply sides, the excess demand shown in the graph above reflects the amount of new inflows coming through these institutional products less the miner outflows (i.e. new coins coming to market). Excess demand highlighted in the green blocks drives the prices up shown by the dark blue line; and conversely, when excess demand falls, pricing is weak as there’s new supply coming to market but no serious money moving to buy it up, said James.

(8:42) “It’s really an evolution of the stock-to-flow model, which suggests that there’s a depleting supply into the future. But the big piece that’s been missing from that model which we’re looking at here is the demand side of the equation relative to that new supply. Looking back at this relationship over time, in 2020 and 2021, it’s the first time that we’ve seen excess demand of this size, And that’s relatable to the fact that the institutional architecture is now in place through the different funds mentioned to allow these big tickets to come in. It’s why we’re seeing such a rally in this current bull market,” said James.

James invites questions at [email protected]

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Paul Gordon
Following a 20+ year career in financial markets, Paul first became interested in Bitcoin in 2011 and helped to establish one of the world's first Bitcoin meetup groups, Coinscrum, in 2012 since when he has grown the community to over 6,500 members, hosting over 250 events and introducing many of the leading projects and thought leaders in the industry.  Paul currently produces the weekly Coinscrum Markets video podcast series and is an active investor and advisor to a number of crypto and blockchain related projects.

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