In recent months, bitcoin miners are capitalizing on their extractions, significantly reducing the balance of BTC in their wallets in preparation for the long-awaited halving.
This event, tentatively scheduled for April 19, 2024, will halve for the fourth time in the history of the cryptographic protocol, the rewards for block validation for miners effectively reducing their income.
The same trend is also observable in the balance sheets of exchanges, where fewer and fewer bitcoins are being held in a downtrend that has been ongoing since 2020.
Meanwhile, Wall Street is buying everything the market has to offer at a rate more than 10 times faster than the times of creating new coins.
Let’s see all the details below.
Bitcoin miners’ wallet balance at minimum since July 2021: many sales waiting for the halving
Miners are selling their bitcoins in anticipation of the fourth halving in the history of the protocol, which will halve the rewards of cryptographic mining from the current 6.25 BTC to 3.125 BTC per block.
This is not at all a novelty: it is well known that miners periodically prepare to liquidate what they have produced.
This does not mean that they do not believe in the future appreciation of the currency, but rather they are somehow “obliged” to capitalize part of the profit to pay some fixed and variable expenses that they incur in their business, such as electricity, new hardware, rent, employees, etc.
If we look at the graph “Bitcoin: Balance In Miner Wallets” offered by the on-chain analysis company Glassnode, we can easily see how this trend is clearly descending over the years.
After reaching a peak in 2012, when Bitcoin and mining were still a nerd hobby, miners have consistently decreased the amount of BTC in their wallets, going from over 2.5 million coins to the current 1.8 million units.
However, in recent months this trend has seen a strong acceleration, with the numbers dropping drastically from November 2023 until today.
The April halving that will halve the amount of BTC that can be extracted in each block will simultaneously increase production costs, definitely influencing the willingness of industry professionals to make some cash to prepare for the following months after the update.
However, we also need to consider the price action of Bitcoin in the middle of this year, which unexpectedly performed much better compared to previous cycles, in which there are usually no significant increases in the pre-halving phases.
This time, however, Bitcoin is at risk of reaching new highs before the well-known quadrennial event, shaking up all the cards on the table.
Miners most likely took advantage of this situation, selling about 18,000 BTC from November to date, for a current value of over 1.12 billion dollars.
In detail, according to Glassnode data, since the second half of October, the balance of bitcoin on miners’ wallets has decreased from 1.83 million coins to the current 1.812 million, with a decrease of 8,426 BTC (530 million dollars) since January.
On this matter, we can report what was recently stated by FRNT Financial, a well-known cryptographic platform based in Toronto, which notes this widespread behavior among those involved in cryptocurrency mining:
“Miners could also be inclined to sell to better position themselves ahead of the halving. This could result in the purchase of more efficient mining equipment due to the new economies that the halving will bring.”
Another explanation for the fact that miners are liquidating much of their stocks can be found in the difficulties encountered by operators in southwest China, where a dry season has been ongoing since October, resulting in higher extraction costs (the cooling of hardware alone represents a significant cost).
At the moment, China represents about 20% of the total hashrate on the Bitcoin network, so potentially the sales of Chinese miners have an impact on the numbers of the entire market.
Even here FRNT Financial contributes on the topic, citing:
“It is known that miners in some Chinese regions bring additional hardware online during the rainy season, when hydroelectric power becomes abundant. Presumably, miners could sell during the dry season to counteract the inactivity of mining hardware.”
BTC balance on cryptocurrency exchanges decreasing since 2020: supply shock incoming?
The same trend recorded in miner wallets can be observed on the centralized exchanges, which see a constant decrease in their bitcoin reserves.
Nevertheless, while miners tend to increase the volume of liquidations in the pre-halving phases, in the case of CEX sales continue without particular stop phases for 4 years now.
Until mid-2020, in fact, thanks to the rise of these platforms as simple solutions for trading and for custody of crypto assets, the balance of BTC on exchanges has skyrocketed, exceeding even the threshold of 3 million coins.
From that moment on, however, in the cryptographic space we have witnessed a trend of emptying coins from centralized exchanges, often ending up in the hands of a few individual holders who rarely move their own resources
In a short time, the liquid reserves in BTC of these entities have dropped below the threshold of 2.3 million units and are at risk of falling even further, causing a supply shock in the price of the crypto.
More and more retail, private companies, and institutions want to buy Bitcoin but if the trend were to remain in the coming months, it will probably be difficult to satisfy the large amount of demand that usually comes in the months after halving, causing a surge in prices.
ETF spot on Wall Street play an important role in this context being the main responsible for the huge purchases recorded since the beginning of the year.
Think that currently the various BlackRock, Fidelity, Ark and company generate daily inflows of bitcoin into their funds 10 times greater than the amount of coins created daily by miners.
However, these entities generally do not make spot purchases, both because of the negative effect on their average purchase price and because it is efficient as a practice: their reference markets are usually the OTC desk and direct contacts with miners and large holders.
Lately, however, a “problem” is emerging for Fund Managers who need to buy Bitcoin for their clients.
The OTC desks, from which they buy large amounts of crypto every day, have reached the minimum balance levels of the last 6 years and are running out of their stocks, leaving the spot markets as the last resort to carry out operations.
If in the coming months Wall Street were to pour into the various markets of Coinbase, Kraken and Gemini, we could expect a hot price action for bitcoin, driven by a supply shock that would send prices skyrocketing.
Ladies and gentlemen, fasten your seat belts.