3 Reasons Why BTC Rise Is Limited: A Closer Look at the Factors Restricting Bitcoin’s Growth

By 0xGorki On May 15, 2023

Bitcoin (BTC) has witnessed a significant rise since the beginning of this year, soaring by up to 100% from its lowest price. Many on-chain cycle indicators suggest that Bitcoin has entered a recovery phase after a downturn, hinting at potential further upside.

However, despite these positive signs, there are several reasons why the current rise may be limited. In this article, we will explore three key factors that are likely to constrain the growth of BTC in the near term.

Decline in US BTC Holdings

One crucial factor curbing Bitcoin’s rise is the continuous decline in BTC holdings by US institutional investors. Historically, during major bull markets, an increase in BTC holdings by institutional investors from the United States has been accompanied by significant price rises.

However, recent months have seen a consistent reduction in these holdings. This shift can be attributed to the ongoing regulatory landscape in the crypto market, leading institutional investors to opt for global exchanges and decentralized exchanges (DEXs) rather than US-based exchanges regulated by the Securities and Exchange Commission (SEC). This trend could limit the influx of new capital into Bitcoin and potentially dampen its price growth.

Decrease in Total Supply of Stablecoins

Another factor constraining the rise of BTC is the decline in the total supply of stablecoins. Stablecoins, such as Tether (USDT) and USD Coin (USDC), play a crucial role in the cryptocurrency ecosystem by offering stability and liquidity.

The total supply of stablecoins serves as an indicator of the buying capacity within the crypto market. In February 2022, the total supply of stablecoins reached a peak of $99 billion, but it has now decreased to $71.1 billion. This reduction suggests a decrease in buying power within the market, potentially impeding Bitcoin’s ability to sustain a significant upward trajectory.

Absence of New Smart Money Players

The absence of new smart money players entering the Bitcoin market is another limiting factor for its rise. Analyses of the BTC Token Transfer indicator reveal that there have been no notable changes in this aspect. This lack of significant movement can be attributed more to supply and demand dynamics rather than the emergence of smart money investors.

For instance, during the FTX crisis, when Bitcoin experienced a drop to $15.8K, the proportion of long-term holders already accounted for nearly 80% of the market. Additionally, the explosive price increase resulting from the liquidity expansion caused by the Federal Reserve’s balance sheet expansion in March further indicates that the rise was driven by factors other than the influx of smart money. The absence of substantial participation from new smart money players could impede Bitcoin’s sustained growth.

Conclusion

While Bitcoin possesses the potential for further price increases, several macroeconomic issues loom on the horizon that could restrict its growth. The impending recession anticipated in the second half of the year has the potential to trigger asset price crashes, which would impact Bitcoin as well.

Consequently, it is likely that Bitcoin’s movement will resemble the pattern seen in 2019, characterized by repeated cycles of rising and falling, rather than the continuous upward trend experienced in 2015. As the crypto market evolves, it will be crucial to monitor these limiting factors closely to gain a comprehensive understanding of Bitcoin’s growth potential in the coming months.

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