Coinbase Report Says Capitulation Mostly Over, Bitcoin Supply Shock In Play

Research from Coinbase suggests that the worst of a macro capitulation for crypto markets is behind us, with a bullish second half of 2022 approaching.

In a report published earlier this week, the exchange said that new narratives may pop up that catalyze another leg up for crypto assets. Specifically, Coinbase says Ethereum’s transition to proof-of-stake (PoS), which will reduce ETH issuance and ideally make it a deflationary asset, is something bulls can look forward to.

Another narrative could be the “commoditization of Ethereum layer-2 networks, which would introduce new L2 tokens and potentially a new category for crypto investments," the exchange said.

Unsurprisingly, Coinbase also says some regulatory clarity would help matters.

“Possibly more regulatory clarity from the U.S. Treasury, following the White House’s executive order in March, as many agency reports are due in early September,” they said.

According to Coinbase, which remains the biggest in the US, “technicals” look healthy for crypto, with a steady trend of Bitcoin leaving exchanges.

“This can be supportive for the asset class as it could mean more coins being taken out of circulating supply to be locked up in cold storage wallets,” they said.

“In particular, we saw 122k bitcoins moved from liquid to illiquid wallets in March, accelerating the move we saw in the preceding four months which averaged 26k. We suspect the move in March reflects the buying by both [Luna Foundation Guard] for its reserves as well as accumulation by MacroStrategy, i.e. MicroStrategy’s subsidiary.”

Coinbase points to an April 19 report from blockchain analytics platform Glassnode that stated most short-term Bitcoin holders who bought the top late last year have already capitulated and redistributed their coins. The exchange says this supports the notion that most of the downside in crypto markets has already been realized and that stronger hands now control most of the available supply.

“That is, positioning looks much cleaner at the moment, with bitcoin ownership concentrated among long-term holders, which could be supportive for the asset class if we witness an upside catalyst,” Coinbase said.

Coinbase’s stock (COIN) hit another all-time low yesterday, but the exchange continues its rapid rate of expansion over the crypto industry. Last month, it announced it had opened operations in India after a hiring spree that quadrupled its staff in the second-most populous region of the world.

“Coinbase’s role here is going to be in a very long-term game. We’re making a long-term investment,” Coinbase CEO Brian Armstrong said. “We know it’s not going to be a straight shot to bring this technology (in the region).

Last week, Coinbase released the first iteration of its new non-fungible token (NFT) marketplace, which amassed more than 1.5 million users on the waiting list within the first day.