Arguably, the biggest hurdle that cryptocurrencies and assets such as the Grayscale Bitcoin Trust (GBTC) are dealing with this year is the view that bitcoin is a risk asset.
The largest digital currency seems to be tightly correlated to equities this year, in turn making it vulnerable to soaring inflation and rising interest rates when crypto investors were hoping for the opposite. In other words, some decoupling is just what the doctor ordered for GBTC and bitcoin. When it might arrive is a different matter.
“While long term decoupling between risk assets and crypto remains a possibility, macro trends appear to continue driving the overall market direction. This pattern can be seen with the increasing 90-day correlations between BTC and the Nasdaq 100 index³ rising above .500,” according to Grayscale research.
As GBTC’s issuer points out, there is some positive news for bitcoin bulls because on-chain data supports the notion that demand for the digital asset remains sturdy. On-chain analysis offers relevant clues, too.
“2022 has seen one of the largest negative net position changes in Bitcoin wallets held by exchanges indicating a large number of users taking custody of their own Bitcoin,” adds Grayscale. “Where is the BTC going? According to a Glassnode analysis, around 14% of BTC supply is being held by small wallets with less than 1 BTC. The amount of Bitcoin collateralized on Ethereum as Wrapped Bitcoin (wBTC), has also reached an all time high of over 277k BTC (~$11.5B) as of April 13, 2022.”
Wrapped bitcoin is a 1:1 collateralized equivalent of bitcoin on the Ethereum blockchain. The wBTC supply is surging this year, potentially confirming that many crypto enthusiasts and investors want to marry bitcoin with decentralized finance (DeFi) protocols.
Still, bitcoin bulls and GBTC investors can benefit from the cryptocurrency asserting itself as a credible store of a value — something investors have been waiting for.
“In contrast to fiat currencies, Bitcoin’s supply is fixed and it does not require, in our opinion, the same logistical considerations as gold reserves – mainly storage, maintenance, and protection. As more entities recognize this, we expect to see the pattern of institutions, nation states, protocol teams, on-chain traders, and casual users utilizing Bitcoin as a store of value to continue long term,” concludes Grayscale.
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