Net Flows Suggest “Bullish” Crypto Market Momentum: Bank of America

Bank of America concluded that the recent increase in crypto outflows from exchanges and an increase in stablecoins sharp inflows signal “bullish” momentum in the market.

In the July edition of his Global Cryptocurrencies and Digital Assets report, the bank went so far as to say that “declining selling pressure” has now turned into “buying”.

This change in sentiment is also reflected in an 11% rise in the digital asset market between June 29 and July 26, despite trending down 56% year-to-date.

“Investors are pulling away from the sidelines as risk assets rally. Tight supply and continued net currency outflows indicate that investors continue to HODL,” the report said.

What is more striking is that the recent positive price action follows exceptionally high CPI numbers and the Federal Reserve’s decision to undertake its largest rate hike in 20 years.

Despite this, Bank of America suggests that investors have acclimated to the current macro turmoil and are ready to venture into risky territory again.

Bitcoin, Ethereumand FTX’s native token FTT have all seen significant flows into wallets and away from crypto exchanges.

This is often understood as a bullish signal, as investors typically remove assets from exchanges when they are simply interested in holding the asset (rather than selling it).

When examining Bitcoin, for example, the major cryptocurrency saw a whopping $508 million in exchange outflows over the past month. During the same period, it recorded a 19% increase, from $19,300 on July 2 to $23,160 on August 1.

Similarly, Ethereum enjoyed net inflows of $381 million, which coincided with an increase of more than 56%, according to CoinMarketCap.

Rise of the stablecoin

The top four stablecoins by market capitalization (USDT, USDC, BUSD, and DAI) saw three consecutive weeks of net inflows totaling $1.4 billion.

Unlike inflows to volatile cryptocurrency exchanges, like Bitcoin or Ethereum, inflows to stablecoin exchanges could be understood as bullish.

This is because stable, dollar pegged assets coming onto the exchange signal that investors are entering the market and looking to buy.

Over the past nine weeks, stablecoin inflows and outflows have alternated, with the last notable increase in outflows of $437 million occurring in late June and early July.

Stablecoin outflows to exchanges’ personal wallets occur as investors seek to protect the dollar value of their assets; this is often the case during periods of falling prices in the crypto space.

However, when investors are looking to increase their risk appetite, they typically look to spend their stablecoins to reinvest in more lucrative assets.

As for Glassnode’s on-chain data, long-term and short-term holders are also actively buying Bitcoin.

Over the past two weeks, short-term holders, in particular, have developed an appetite for Bitcoin, indicating that this “bullish” momentum may be short-lived.