Bitcoin miners
Miners are hoarding most of the Bitcoin they mine before halving, showing that they expect a much higher price after the event.
Miners have sold less Bitcoin ( BTC ) in the past seven days as the long-awaited block-block reward reduction approaches. This means that miners expect Bitcoin's price to increase substantially over time after halving occurs.
Bitcoin's halving, which is scheduled for Tuesday, occurs approximately every four years. When activated, it decreases the amount of Bitcoin miners are rewarded with for their troubles. Since the new generated Bitcoins are introduced to the market by the miners who sell it, halving is expected to decrease the introduction rate of these new Bitcoin.
Given Bitcoin's deflationary nature, any event affecting its supply will have a significant impact on the price of the asset. In the medium and long term, the data shows that miners are confident that halving will cause the price to rise substantially.
Bitcoin hoarding by miners is typically a bad sign
Over the past week, according to ByteTree data, miners had around 1,067 Bitcoin. Apparently, the hoarding of Bitcoin by miners seems positive, but it is not.
Bitcoin miners, especially large-scale centers, carry out highly sophisticated operations with professional traders and market analysts. They frequently assess liquidity and overall market sentiment. If miners consider liquidity in the cryptocurrency market to be low, they refrain from selling.
When there is not enough buy demand in the market, selling a significant amount of Bitcoin can lead to an abrupt drop in price with a high slippage. The term slippage is used to describe a movement in the price of an asset when a large buy or sell order is executed.
Typically, miners who grab most of the bitcoin they mine unsold to cover expenses are not optimistic. But the ByteTree research paper noted that this time miners can expect the next halving to drive Bitcoin's price up substantially. Company co-founder and president Charlie Morris wrote:
" Normally we see this as a bearish thing because it implies a soft supply in the market. With the recent price increase, this clearly has not been the case, and therefore we can only assume that miners also think that prices will rise after halving ."
Miners are likely to anticipate a major Bitcoin rally due to the rising cost of mining after halving occurs . In 2018, the average cost of mining a Bitcoin in the United States was estimated at $ 4,758. In countries with lower electricity rates and naturally cold climates, such as China's mountainous regions, the cost of mining was around $ 3,200. Earlier this year, research firm TradeBlock stated that the cost of mining a single Bitcoin was estimated to be $ 6,851. Therefore, as long as the price of Bitcoin remained above $ 7,000, the miners would be profitable.
How is halving becoming the Bakkt of 2020?
The fact that Bitcoin's price remained above $ 6,000 or $ 7,000 before Tuesday's halving has been crucial for the same reason. If Bitcoin didn't recover to the $ 8,000 to $ 9,000 range, it could have pressured small, overleveraged miners to temporarily shut down their businesses . After halving, the cost of Bitcoin mining is estimated to be between $ 12,000 and $ 15,000, according to the same TradeBlock blog post. Therefore, given that Bitcoin's operating cost will exceed $ 12,000, miners are likely to expect Bitcoin's price to regain the range of $ 12,000 to $ 15,000 in the medium term.
Miners have avoided disastrous halving
For now, with just four days to go before halving, sentiment around Bitcoin and the overall cryptocurrency market remains positive among the mining community. But the state of the mining industry could have been in a worse position than now if the price of Bitcoin had not recovered quickly. On March 12, less than two months before halving, the price of Bitcoin dropped to around $ 3,600 .
At the time, there were theories that the price of Bitcoin should never drop below $ 5,000 in the first place. A cascade of long liquidations, mainly on BitMEX, caused prices to skyrocket. Since then, Bitcoin has completed a V-shaped recovery with a 150% rally . There was concern that insufficient liquidity and the general feeling of caution in the stock market would trigger a sharp correction in the cryptocurrency market.
Strong spot volume on major exchanges like Coinbase and Binance showed real retail demand . Increasingly lowered the probability of a pullback like Black Thursday, as the price of Bitcoin rose with increasing volume.
Both Deribit Options and CME Futures had record trading activity on Wednesday, and CME saw record open interest in their futures contracts. As of Thursday, Bitcoin's price hovered around $ 9,500, 40% higher than Bitcoin's mining cost before halving. If Bitcoin had remained at $ 6,000 or less at the time of halving, the miners would have been forced to trade at a loss, which would have put many miners in a financially unstable position afterward.
Now, with Bitcoin at over $ 9,000, China's top miners will be able to negotiate lower electricity rates to mine Bitcoin at equilibrium prices, possibly even after halving. The rainy season is starting in China's Sichuan province, where many of the major mining centers are located. Since many power plants in Sichuan run on hydroelectric power, the region is often left with a surplus of electricity.
A single region of China accounts for a third of the global BTC hash rate
Cheaper electricity, higher Bitcoin prices, and strong buyout demand from retail investors put miners in a strong position to halving and face revenue cuts later.
Previous halvings led to bullish stages
After the halving of November 2012, the price of Bitcoin rose 6.940%, going from $ 10 to $ 704 over a period of four years until the activation of the next halving in July 2016. From July 2016 until now, when we headed As of May halving, the price of Bitcoin has risen 1,249% more, increasing more than 10 times.
Based on Bitcoin's historical performance and the famous stock-to-flow relationship created by PlanB, Pantera Capital CEO Dan Morehead said Bitcoin's price could hit $ 115,000 in mid-2021.
Bitcoin price cycles after halvings
Crypto trader Satoshi Flipper explained that the price of Bitcoin is technically approaching a significant resistance level of several years. Although traders remain divided on whether Bitcoin will make its way on its first attempt, investors anticipate a prolonged uptrend for Bitcoin in the medium term. The trader said :
" We are approaching the resistance of the upper trend line at the same time as the next halving of $ BTC begins. I expect huge fireworks and the outbreak of this massive 2-year symmetrical triangle. We have touched that resistance a few times already ."
Bitcoin approaches multi year trendline ahead of halving
One possible reason why Bitcoin's price tends to increase substantially after halving is that the selling pressure in the market is reduced . Miners are generating 50% less Bitcoin, and that's half the usual supply sold to the market.
Historically, the price of Bitcoin has seen significant gains in the 10 or 11 months after halving , which discourages miners from selling Bitcoin as soon after its appearance. Alejandro De La Torre, the vice president of the Poolin mining pool, wrote in a blog post:
"There is little doubt among researchers and industry experts that the hash rate will decrease significantly when the block's subsidy is cut in half. Blockware Solutions recently released a report arguing that the reduction to the Half will ease sales pressure as older equipment and higher electricity costs squeeze inefficient competitors. "
Bitcoin miners tend to be in a better position than in previous halvings due to the existence of professional custody solutions, mining-specific service providers and a general increase in liquidity in the spot and over-the-counter markets. Overall halving in mid-May is expected to set a positive precedent for the long-term price trend for the next four years , especially as Bitcoin approaches its fixed supply of 21 million.