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Bitcoins rally to start 2023 has spurred calls of a new bull market, with the largest cryptocurrency gaining 80% to vastly outperform the stock marketwhere the S&P 500 is up a meager 7% by comparisonas a leading indicator of risk sentiment.

This time might be different.

Investors excited about Bitcoins rally to $30,000 might be in for a rough awakening when they realize that it didnt boost trading volumes at Coinbase , Dan Dolev, an analyst at Mizuho Securities, wrote in a Thursday note. Coinbases average daily volumes are less than $1 billion in April versus $1.6 billion in March, he added.

We believe large institutional players are buying Bitcoin in hopes that retail would follow. Yet, retail seems uninterested, Dolev said. This is not a broad-based crypto renaissance.

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Mizuho rates Coinbase stock at Underperform with a $30 price target. Shares in the broker were up more than 102% this year, opening Thursday at $69.89.

However, there are other, alternative signs that there is momentum behind smaller U.S. investors coming back to crypto.

For one, the recent growth in Bitcoin wallets is concentrated among the smallest holders. The number of wallets holding at least 0.01 Bitcoinabout $300has risen more than 3% since the start of 2023, according to crypto data group Messari. Growth gets smaller as wallets get bigger: The number of wallets holding at least one Bitcoin has grown around 1.5%, while wallets with more than 10 Bitcoin are up just 0.5%.

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There is also the so-called Coinbase Premium Gap, a metric tracked by data firm Crypto Quant that measures the difference between Bitcoin prices quoted on Coinbase and those on Binance, the worlds largest crypto exchange. Since Coinbase is most popular in the U.S. and Binance is an offshore behemoth, the gap indicates how crypto demand among Americans stacks up relative to the rest of the world.

After spending much of 2022 in discount territory, the Coinbase Premium has been positive for most of 2023 and was sitting around $25 on Wednesday.

Coinbase releases its first-quarter financial results, likely in Mayand where Bitcoin prices will be then, who knows?and hopefully will provide some guidance for the current quarter, which includes Bitcoins latest bullish jump.

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Until then, however, there is at least some reason for optimism.

Write to Jack Denton at jack.denton@barrons.com

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Coinbase Isn't Profiting From Bitcoin's Big Rally. Why This Time Is Different. - Barron's