Strategy’s BTC Divestment Sparks Buying Not Exodus

Bitcoin’s largest corporate treasury accumulator, Strategy, announced its first major bitcoin sale over the last week. However, the market has taken it well.

After reaching  a cycle low of $57,803 on 1 July, following a period of extended downtrend, BTC has started July positively, and in line with the views we expressed in Bitfinex Alpha, issue 212, published on 6 July: the market could see a potential recovery this month.

An interesting observation is that between 29 June to 2 July, when Strategy would have executed its BTC sales, the price ended the week up and almost  10.5 percent above the cycle lows. Indeed, in the last session of last week and the first session of this week, we are seeing  moderately sized inflows into BTC Exchange Traded Funds (ETF) of above $200 million/day, breaking a streak of 10 sessions of consecutive outflows, totalling $2.73 billion.

June has been a torrid month for BTC ETFs, with the overall outflow streak calculated on a weekly basis, extending to nine straight weeks, with June alone closing with nearly $4.06 billion in net redemptions. 

Interestingly, these redemptions represent authorised participants returning ETF shares for liquidity as passive interest wanes, effectively reducing underlying BTC reserves without necessitating immediate on-chain liquidations. It is not yet evident to what extent market participants have accounted for these capital flows, as observed spot volume does not fully mirror the magnitude of recent liquidations. 

Asset composition within ETF portfolios, combined with a shift toward net positive inflows, introduces new variables for market activity throughout July which are looking positive so far. While the recent consecutive inflows contrast with the preceding nine-week outflow trend, they remain a small sample size relative to historical redemptions and cannot negate their effect yet, despite the market having a decent amount of passive demand to have absorbed these sales so far. 

Outside of the downside volatility immediately following the recent corporate divestment announcement by Strategy, BTC has maintained price stability and is already back at its Q1 range lows and above its trading price, prior to the Strategy announcement.

ETF flows have registered three consecutive sessions of net positive movement. Given that price rebounded off the daily lows to close Monday up, the price point where demand has come in after the MSTR announcement is now our  pivot level for bull versus bear strength, which sits around $61,000.

Have we reached a bottom?

In the context of higher timeframes and cycle structure, recent downward volatility has triggered a notable psychological and structural shift in the market, as the amount of bitcoin held at a loss now eclipses profitable supply.

Nearly 10.83M BTC are currently underwater, while 9.22M BTC maintain their unrealised gains. This development represents a significant erosion of investor profitability within the current cycle, mirroring the intensity of the latest price discovery phase.

Historically, this represents a moment of peak stress for spot holders and typically happens before a bear market bottom is formed. 

However, it is too early to speculate on macro bottoms given that we remain in a higher timeframe downtrend, and a lower timeframe range. This flip signals that there might be a potential bottom reached within the next 2-3 months. More important confirmation of this  would be a sustained reclaim of key levels like the True Market Mean, currently at $71,500, before we can consider a macro bottom being in. 

Current conditions typically dampen short-term sentiment, but provide a necessary environment for passive demand to absorb supply from exiting hands. With fresh accumulation emerging among Long-Term Holders and various whale cohorts, this sharp decline in net profitability suggests that BTC is once again migrating toward entities with higher conviction levels.