Bitcoin (BTC) Has Been Seeing A Rise In “Paper BTC” Recently, Here's Why

Bitcoin has been struggling even though spot exchange-traded funds (ETFs) have been bought. Here's why, according to this analyst.

Bitcoin’s recent rally has been slowing down even though spot exchange-traded funds (ETFs) and institutional entities have been buying up the cryptocurrency.

According to Willy Woo, an on-chain analyst, there are two main reasons for this bearish momentum.

The first reason has to do with the selling pressure coming from the long-term holders (LTHs) of Bitcoin. These investors tend to keep their coins dormant for long periods of time, and the timing of when they participate in selling appears to have followed a pattern throughout history.

The Coin Days Destroyed (CDD) metric can be used to track this activity. The CDD keeps track of the number of coins that investors are moving on the blockchain daily and weighs it against the age of said coins.

When the CDD spikes, many dormant coins have just broken their silence. As is visible in the graph below, the Bitcoin CDD had seen a huge spike earlier in the year when the asset’s price had set a new all-time high (ATH).

This suggests that the LTHs potentially took part in a large amount of selling during this rally, which may have contributed to the slowdown in the asset’s price appreciation.

The second reason for the slowing down of Bitcoin’s rally could be due to “paper Bitcoin.” Paper BTC refers to derivatives products that don’t involve the investor owning real tokens of the cryptocurrency.

As Woo explains, “In the old days, BTC would go on an exponential run because the only sellers was a trickle from the OGs and an even smaller amount from miners with their newly mined coins. Today the magic of paper BTC is what you want to watch.”

The chart below shows the Bitcoin inventory sitting on exchanges in recent years.

The spot inventory of the asset has only shown phases of downward and sideways trends during the last few years, indicating that the exchanges have not been receiving any significant net deposits.

However, the spot plus paper BTC inventory did see a rise during the 2022 bear market. This increase implied that paper BTC was being minted rapidly, as the spot inventory was only consolidating in the same period.

According to Woo, this suggests that paper BTC dictated the bear market. The analyst has marked the instances where paper BTC rose during this current bull market in the graph.

It seems that every time paper BTC has gone up, the rally has slowed. The inventory of paper BTC has been increasing again recently, which may explain why Bitcoin has been unable to establish bullish momentum.

At the time of writing, Bitcoin is trading at $65,300, down 0.3% in the last 24 hours and up 1.2% over the past seven days.