Bitcoin price is holding steady after another tumultuous week. The cryptocurrency is changing hands at $27,862.57, relatively unchanged from its price a day earlier. On a weekly basis, bitcoin price is up by 1.5%, according to data from CoinGecko.

The price rise is impressive in a week that witnessed another quarter percentage point hike in interest rates by the Federal Reserve. An increase in interest rates is bad for risky assets like bitcoin because it makes regulated instruments like treasuries preferable for investors.

Turmoil in the U.S. economy – a hard-to-control inflation and rippling banking crises – continue to dominate conversation about bitcoin price action. The theory here is that the cryptocurrency is a hedge against the turmoil. As long as the turmoil persists, bitcoin price will continue to increase say commentators.

Balaji Srinivasan, former Coinbase CTO turned rabble- rousing intellectual, has even placed an ‘ideological’ bet that its price will touch $1 million in 90 days due to hyperinflation in the mainstream economy.    

A Different Narrative on the Ground  

A ninety-day timeframe for a drastic move in bitcoin price is generous. The cryptocurrency might collapse before then because, away from the discussions of inflation, another narrative is developing. This one is about the fast-shrinking liquidity for bitcoin in crypto markets.

Whales, or those who hold more than 1,000 bitcoins in their wallet, are exiting its ecosystem. Outflows from bitcoin, ether, multi-asset funds totaled $130 million in the past, according to investment firm CoinShares’s latest weekly report on fund flows.

About $35 million flowed into bitcoin funds, primarily to short the cryptocurrency. With fewer players in the trading game, bitcoin price has become more volatile and susceptible to manipulation by those with large holdings.  

Binance Gets Into The Act

Meanwhile, a series of troubling developments are taking place elsewhere in the bitcoin ecosystem. Controversial stablecoin Tether’s market capitalization continues to skyrocket and is $79.7 billion, as of this writing.

The blanketing of crypto’s ecosystem with new Tethers earlier, during times of low interest rates, was a possible precursor to a takeoff in prices. Given crypto’s low liquidity and corresponding macroeconomic developments, it is difficult to make the same case.

Complicating the situation further is Binance’s decision to reinstate fees for the BTC/USDT and BTC/BUSD trading pair. It had abolished fees on four market trading pairs, including the ones mentioned above, last June. The move to reverse that decision will likely further shrink liquidity for bitcoin.

Conor Ryder from research firm Kaiko Research reports that liquidity for the BTC/USDT trading pair crashed by 70 percent in the aftermath of Binance’s decision. The exchange accounts for the biggest trading volumes in bitcoin and the two pairs were among the top three trading partners for the cryptocurrency.

Circle Redemptions: Burn Baby Burn  

Circle is still suffering from the after-effects of the recent depegging of its stablecoin, USDC. According to reports, investors redeemed $12 billion worth of USDC in March while Circle issued about half that figure in new tokens of the same stablecoin on Ethereum’s blockchain.

Unlike Tether, which charges a hefty fee and has minimum amount conditions for redemption of its stablecoin, the process to redeem Circle is supposed to be relatively easy. But that doesn’t mean it is any more transparent.

There are only two venues to redeem USDC – Circle and Coinbase. Even for those traders that trade USDC at exchanges, creating a Circle account is necessary. But we don’t know the number of people with Circle accounts.  

Who Redeems USDC?

So, who is redeeming USDC? It is difficult to tell.

As of this writing, there are 33.9 billion USDC in existence per data from Coinmarketcap. Out of these, only 3.5 billion USDC trades at exchanges. That means roughly 30.4 billion are locked in smart contracts. They are used for various transactions, such as collateral for trades or in staking to earn yield.

The problem is that it is difficult to retrieve your USDC from staking platforms or a collateralized position and present it for redemption without incurring significant losses. A bunch of hashed addresses do not count as publicly verifiable data.

In the meantime, Circle continues to send tokens to null addresses and claiming that those burns are, in fact, investors redeeming their tokens. That claim is like earlier ones from Tether.

In crypto, the story doesn’t change. Only the actors do.