Bitcoin’s October Rally Faces Uncertainty Amid Rising OTC Holdings

Bitcoin’s price trajectory in the final quarter of 2024 is under scrutiny, as analysts weigh both potential headwinds and signs of optimism. A recent surge in Bitcoin holdings on over-the-counter (OTC) desks raises questions about market sentiment, while key valuation metrics suggest the cryptocurrency could be primed for further gains. At the same time, global liquidity trends and the upcoming US election are expected to play significant roles in shaping Bitcoin’s performance through the remainder of the year. 

Bitcoin’s ‘Uptober’ Rally Faces Potential Headwind: Surge in OTC Bitcoin Holdings Raises Concerns

The much-anticipated fourth-quarter rally for Bitcoin, often dubbed “Uptober,” faces a potential obstacle. Recent data from CryptoQuant reveals that the amount of Bitcoin held on over-the-counter (OTC) desks has surged, hitting levels not seen since May 2022. With over 410,000 BTC now sitting on OTC desks—more than double the 185,000 BTC seen in March—this spike could pose a challenge to Bitcoin’s momentum in the coming months.

The significance of OTC desk balances lies in their function. Unlike traditional exchanges where trades are visible and directly influence market prices, OTC desks cater to high-net-worth individuals and institutional clients who wish to execute large trades discreetly. By utilizing OTC desks, these entities can buy or sell substantial amounts of Bitcoin without causing significant price fluctuations on public exchanges. The balance of Bitcoin on these desks represents liquidity available for purchase or sale—higher balances indicate robust liquidity and the ability to fulfill large orders, while lower balances may signal a constrained trading environment.

The surge in OTC desk balances is drawing parallels to a similar uptick seen in late 2020 and early 2021 when OTC balances rose from 235,000 to 435,000 BTC in just six months. During that period, Bitcoin’s price was on a notable upward trajectory, with the flagship cryptocurrency reaching new all-time highs in early 2021. However, the current situation is quite different. Despite the increase in OTC balances, Bitcoin has been stuck in a downward channel since hitting its all-time high above $73,500 in March.

The question now is whether this surge in OTC-held Bitcoin represents net buying, like in 2020, or if it’s a signal of potential selling pressure. In 2022, as Bitcoin’s price fell during the bear market, the OTC balance dropped in tandem, suggesting net buying activity from institutional players looking to accumulate Bitcoin at lower prices. In contrast, the recent increase in OTC balances could indicate that large holders are preparing to sell, which could put downward pressure on Bitcoin’s price as the market enters the final months of the year.

The Role of OTC Desks in the Bitcoin Market

OTC desks play a crucial role in the broader cryptocurrency market by providing a means for institutional and high-net-worth investors to move large sums of Bitcoin without triggering price swings. This makes them an attractive option for big players like hedge funds, family offices, and corporations looking to invest in or divest from Bitcoin without affecting its market value.

Given the surge in OTC desk balances, it’s important to consider who might be behind these transactions. If the rising OTC balances are driven by institutions accumulating Bitcoin, it could be a positive sign for the long-term outlook of the market. On the other hand, if the increase represents potential selling from these same institutions, Bitcoin could face significant selling pressure in the short term, potentially derailing the optimistic “Uptober” narrative.

The rise in OTC balances between late 2020 and early 2021 coincided with one of Bitcoin’s most significant bull runs, as the cryptocurrency saw its value surge from around $10,000 to over $60,000. At that time, the rising OTC balances were largely viewed as a sign of institutional accumulation, as major players like MicroStrategy, Tesla, and others publicly disclosed large Bitcoin purchases.

However, the current surge in OTC balances is taking place under very different market conditions. Bitcoin’s price has been trending downward for most of 2023, and the broader macroeconomic environment remains challenging, with rising interest rates, inflation concerns, and tightening monetary policies from major central banks.

For Bitcoin to reignite its bull run into the fourth quarter, analysts suggest that a drop in OTC desk balances could be a key indicator. A reduction in the amount of Bitcoin held by OTC desks would likely signal increased buying activity, as institutions and high-net-worth individuals snap up available liquidity in anticipation of higher prices. On the other hand, if the OTC balances continue to rise, it could indicate that selling pressure from large holders remains a significant headwind.

As the market moves deeper into the final quarter of the year, all eyes will be on the interplay between OTC desk balances and Bitcoin’s price action. While “Uptober” has historically been a favorable time for Bitcoin, the current macroeconomic landscape and the surge in OTC balances suggest that caution is warranted.

If the balance on OTC desks starts to decline, it could be a signal that institutions are accumulating Bitcoin ahead of a potential price rally. However, if balances remain elevated or continue to rise, it could mean that the market is bracing for more selling, putting downward pressure on Bitcoin and potentially delaying the expected rally.

Can BTC Break New Highs Amid Global Liquidity Surge and Election Year Volatility?

Bitcoin is trading 7% below its local high of $66,508 reached on Sept. 27, currently sitting at $61,751.35. Despite this recent pullback, several prominent analysts remain optimistic that the correction could represent a healthy reset in key metrics, paving the way for significant gains in the final quarter of 2024.

Jamie Coutts, chief crypto analyst at Real Vision, pointed out in an Oct. 1 post on X (formerly Twitter) that Bitcoin remains close to all-time highs, but important valuation metrics have declined from extreme overbought levels. “Bitcoin is near all-time highs, yet the valuation metrics have all declined from extreme overbought in March to around 17-75% on a 4-year Z-score,” he stated. 

Coutts specifically referenced the Market Value to Realized Value (MVRV) Z-score, which measures how far Bitcoin’s market value is from its realized value. According to Coutts, the MVRV Z-score is showing that Bitcoin is currently undervalued on multiple timeframes, with a drop of -116% over the past three months, -94% over two years, and -107% on the four-year timeframe.

This undervaluation, according to analysts, indicates that Bitcoin may have room to grow and could be preparing for a major upward move as it heads into the last quarter of 2024.

Coutts also pointed out that Bitcoin’s open interest (OI) is high, a key metric that traders use to assess market sentiment. Open interest refers to the total number of outstanding futures contracts that are yet to be settled. When OI is high, it often signals that investors are positioning themselves for substantial price movement.

Over the last four years, Bitcoin’s Perpetual Futures OI has grown by 800%, reflecting a sustained interest in Bitcoin despite its recent price correction. While high OI typically signals increased activity and interest, Coutts noted that funding rates—the cost of holding these futures contracts—remain subdued. This means that while there is a high level of open contracts, the overall market sentiment has not become overly bullish, which is seen as a positive sign for sustainable future growth.

A significant driver behind the bullish outlook for Bitcoin is the global liquidity landscape. Coutts remarked that “global liquidity is accelerating to the upside,” signaling that the monetary environment is becoming more favorable for risk assets like Bitcoin. He emphasized that the pullback over the last six months has removed excessive bullishness from the market, providing a needed “reset” for the cryptocurrency to make a “major move higher.”

One of the key insights supporting the optimistic outlook for Bitcoin is its strong correlation with global liquidity trends. A report by independent analyst Lyn Alden highlights that Bitcoin’s price has historically moved in tandem with global liquidity, rising when liquidity expands and correcting when it contracts.

Between May 2013 and July 2024, Bitcoin’s price demonstrated a 0.94 correlation with global liquidity, indicating an almost perfect positive relationship. This correlation suggests that Bitcoin thrives in environments where money supply is increasing, and liquidity is abundant. With global liquidity currently on the rise, analysts like Alden suggest that Bitcoin could be poised for another rally.

How High Can Bitcoin Go in Q4?

While the broader economic conditions seem to favor Bitcoin, additional factors such as the 2024 US election and Bitcoin’s halving cycle are likely to influence its price movements in the last quarter of the year.

Historically, Bitcoin has shown mixed performance during US election years. Timothy Peterson, a Bitcoin analyst, noted that Bitcoin tends to perform “significantly weaker” in US election years compared to non-election years. According to Peterson, the uncertainty surrounding election outcomes creates volatility in the markets and drives more cautious behavior among investors. Bitcoin, which is highly sensitive to shifts in market sentiment, often reacts sharply to this uncertainty.

However, Peterson pointed out that Bitcoin could recover and record more gains in November and December as election results become clearer and investor confidence returns. “Once election results are known and markets have a clearer picture of the political landscape, investor confidence typically returns, and the focus shifts back to broader economic and market conditions, allowing Bitcoin’s price movements to normalize across both election and non-election years,” Peterson explained.

This sentiment is echoed by other analysts, including Archie, the founder of BTC Archive, who believes that Bitcoin’s performance in the fourth quarter of 2024 could be strong, especially after a historically green September. Bitcoin closed September 7.29% higher, the greenest September in Bitcoin’s history, and Archie believes this momentum could carry into the final months of the year. He is optimistic that Bitcoin could even hit six figures by the end of 2024, driven by a combination of improving liquidity conditions and renewed investor confidence post-election.

Adding to the bullish sentiment is the fact that 2024 is a Bitcoin halving year. Every four years, the Bitcoin network undergoes a halving event, which reduces the rewards miners receive for processing transactions by half. This reduction in supply has historically been followed by significant price rallies, as decreased supply in the face of steady or increasing demand pushes prices higher.

With the halving in the first half of this year, many investors are positioning themselves for the potential price surge that typically follows. Combined with improving global liquidity and the potential easing of election-related uncertainties, the halving could serve as a catalyst for Bitcoin to break new highs in the coming months.