Morgan Stanley Says Record Number of Bitcoin Have Not Been Used for 6 Months

Nearly a year into the “bitcoin bear market,” most investors who bought the cryptocurrency in 2021 are facing heavy losses and look to be waiting for rallies to close their positions, Morgan Stanley (MS) said in a research report Thursday.

Bitcoin (BTC) has traded in the tightest U.S. dollar range since late 2020, despite heightened volatility in other financial markets. This stability “suggests some traders are buying dips below $18,500 to prevent BTC falling materially below its 2017 prior cycle high,” the report said.

A record 78% of bitcoin has not been used in transactions in the last six months, and the level is increasing, according to the report. That implies investors who bought or received bitcoin longer than six months ago are holding on to their positions, with some likely waiting for a recovery in price, analyst Sheena Shah wrote.

Estimates suggest that for the remaining 22% of bitcoin held by shorter-term investors, the average breakeven price is slightly over $22,300, the note said.

The bank says that trading volumes have been falling on most exchanges except Binance, which lowered BTC trading fees to zero in July to grow market share. Bitcoin’s price has been “surprisingly stable” since this change, raising the possibility that the price stabilization was “being supported by traders on Binance taking advantage of zero fees and making short-term purchases.”

Ether (ETH) is now tracking equity markets more than bitcoin, the note said. Due to BTC’s relative stability, some investors may be asking whether Ethereum’s move to proof-of-stake (PoS) “has changed the trading dynamics” for bitcoin, because the Bitcoin blockchain does not limit access to certain market participants in the way that Ethereum now does. The transition, known as the Merge, was the first of five upgrades planned for the Ethereum blockchain and involved the switch to a more energy-efficient consensus mechanism.

Morgan Stanley says institutional demand for crypto depends on price volatility. Traditional finance companies have increasingly been introducing crypto products to meet client demand, but given recent flows in exchange-traded-products (ETP) and volume trends “unless there is material upward price volatility it may be difficult to see that real demand pick up materially,” the note added.

Read more: Morgan Stanley Says Crypto Ecosystem Is Becoming Less Decentralized