BENGALURU (REUTERS) - Who can save Bitcoin?

The world's biggest cryptocurrency cannot seem to catch a break. It finally looked to be regaining strength this month, breaching US$25,000 for the first time since its June collapse, only to relapse towards US$20,000.

A deflating end to August has forced the market to confront the big Bitcoin question: Where will a real rally come from?

Right now, doughty retail investors are looking like the most likely source of relief as institutional players get cold feet in the midst of a macro maelstrom.

The amount of "illiquid Bitcoin" across the market - held by wallets that rarely spend or sell - has risen by 73,840 bitcoins over the past week, the largest weekly increase for more than two months, according to Chainalysis data. This equates to roughly US$1.7 billion (S$2.4 billion) at recent prices.

Furthermore, the amount of Bitcoin held for over a year has increased by 54,300 on average in the last four weeks, the largest rise in about four months, Chainalysis said. Meanwhile, cryptocurrency exchanges have seen net outflows for three straight months as investors pulled their tokens into "cold storage" rather than selling, according to Arcane Research.

"It is clear that longer-term holders at the retail level are also accumulating. The number of wallets holding relatively small amounts of Bitcoin is indeed growing," said Mr Jay Fraser, head of strategy at BSTX securities exchange.

"Don't underestimate the impact of the retail HODLers," Mr Fraser added, referring to a cohort whose name emerged years ago from a trader misspelling "hold" on an online forum. "Their lack of selling helps to create more scarcity so that, eventually, a supply shock for Bitcoin will again play out."

Institutions 'drove market down'

So what about those deep-pocketed institutional players that jumped on the crypto bandwagon when prices were high?

They have been selling hard, according to some market participants who say these big investors have been the primary driver of the crypto slump over the recent months.

In the week to Aug 19 - the week that saw Bitcoin slide anew - the digital asset investment products favoured by traditional institutional finance players saw outflows of around US$9 million, according to Coinshares data.

"The latecomers - institutions that came in close to the highs or the US$30,000 to US$50,000 levels - they are the ones that drove the market down, mostly," said Mr Ed Hindi, chief investment officer at Tyr Capital Partners.

Mr Hindi pointed to a steep discount between futures contract prices and the Bitcoin spot price on the CME exchange as further evidence of institutional bearishness.

The discount for the most traded contract hit an all-time low of 3.36 per cent last week, Arcane Research analysts said.

'Ready to buy the dip'

But do not count institutional players out - there is plenty of evidence they have not given up on Bitcoin, which is down a whopping 70 per cent since the all-time high of US$69,000 touched in November, and has lost 56 per cent since the start of 2022.

Some market watchers point to the decision of BlackRock, the world's largest asset manager, to launch a private Bitcoin investment product specifically for institutional investors as a strong sign that demand remains strong and could drag crypto out of the doldrums.

Mr Andy Edstrom, managing director of Swan Advisor Services, said his firm had continued to see interest from financial advisers and their clients in Bitcoin investments despite some "fair-weather interest" going away.

"Some advisers are ready to buy the dip. They are telling us 'I've got dry powder to invest in US$20,000 Bitcoin'," he added.