The bitcoin price “capitulated” for the first time this year in May, and then the bitcoin market started to show signs of a sell-off. Just last week (the last week of June), the market “capitulated” again, with bitcoin falling to $28,993, a record loss of $3.45 billion, although the price has now recovered to around $35,000. In this case, many people feel that the most panicked are the miners, but in fact, if they stick around, miners will likely still be profitable, while institutional investors will be in more “trouble”.
In fact, as the valuation of the bitcoin market increases, it is quite possible that there will be greater dollar denominated gains and losses. Keep in mind that losses occur on the chain when bitcoins last moved at a higher price (UTXO creation) are spent again at a lower price (UTXO destruction). It is worth noting that a lot of “underwater” bitcoins were sold off in the last week of June. However, we found that almost all of the long-term holders took profits, with their “spending” actually offsetting a net loss of $383 million, for a total realised loss of $38.33! Long term holders currently hold only 2.44% of the unrealised loss in bitcoin.
So when it comes to Long-Term Holders (LTH), are Short-Term Holders (STH) making a profit or a loss in the near future? In fact, there is an indicator that can be measured here – Spent Output Profit Ratio (SOPR). This metric allows us to compare the recent bitcoin setbacks on a relative basis, and by analyzing the Spent Output Profit Ratio metric for two groups of people, we can see whether they are making a profit or a loss.
First, there is data showing that long-term holders have a SOPR of 1.95, meaning that they are realizing a profit of 195%, and have seen an increase in realized profits due to the fact that they are usually in profit. But on the other hand, the spent output margin of long-term holders has recently begun to fluctuate more, albeit less than the SOPR of short-term holders.
The spent output margin for short-term holders SOPR usually fluctuates around 1.0, due to the recent market shocks that have been more pronounced, especially recently, and you will find that the short-term holders SORP values have been below 1 recently, which means they should have suffered significant losses recently.
Indeed, the bitcoin price has indeed entered a downward trend this week, as demonstrated by the increased volatility in SOPR for long-term holders and the deep “capitulation” in SOPR for short-term holders. This market dip also seems to have created a degree of panic among both long-term and short-term holders, and there is a high degree of uncertainty in the market: long-term holders are now willing to spend an average cost of the digital currency that essentially fluctuates between $920 and $1,630, while short-term holders have realized losses that are only slightly less than the market crash triggered by the new coronavirus outbreak in March 2020.
In addition to this, we also find that the market selling pressure is mainly coming from short-term holders, who are holding about 23.5% of all liquid supply with unrealised losses, while only 3.4% are realising profits. At the same time, some long-term holders sold their digital currencies during the market volatility out of fear of spreading costs, however the majority of long-term holders did not choose to sell their holdings as the digital currencies that have been transferred are still “young” (i.e. have not been mined or held for long). This is despite the market realizing a net loss of 34.5.
Bitcoin math plummets as miner sell-offs surge
With the largest ever miner shutdown, Bitcoin’s network-wide arithmetic plummeted and the largest migration in history took place, and a miner sell-off ensued. Industry insiders have speculated that they will need to sell off BTC to cover the operating costs of the miner shift, and the miner sell-off is likely to put a damper on price increases.
The sharp drop in miners’ income, coupled with the recent near-slashing of bitcoin prices, has led to miners being forced to sell more bitcoin to convert to fiat currency to cover operating costs. In addition, miners relocating or liquidating mining equipment have had to liquidate bitcoin already held in their inventory and pay for the logistics and risk hedging incurred by converting to fiat currency, a costly expense that can last for months.
By evaluating the change in total miner revenue (7-day average), we find that bitcoin miner revenue remained relatively stable in both March and April, although the bitcoin mining market subsequently declined by ~65.5%, with the current 7-day average mining revenue at ~$20.73M/day, which is still 154% higher than when bitcoin block rewards were halved in May 2020. Despite the 154% increase in average 7-day revenue, the difficulty of the bitcoin mining puzzle has only increased by 23.6%. The main reason why there is such a mismatch between bitcoin miner revenue and mining difficulty is that the global semiconductor shortage is limiting miners’ ability to expand their businesses. In this case, it means that mining bitcoin will be very profitable throughout 2021, while bitcoin mining hardware devices that were supposed to become obsolete can still continue to be profitable. In other words, miners would only need to sell fewer bitcoins to cover their operating costs and could build up their own stockpile of bitcoins. Therefore, unless the bitcoin price drops further, or “offline” and “relocated” miners can quickly return to online mining in the near term, miners who stick with their operations are likely to see higher profits in the coming weeks.
The above analysis shows that bitcoin miners who stay in operation are less likely to “overdo” and “force” the sale of their bitcoin holdings, so Chinese miners are more likely to be the main source of sellers at the moment, as they need to liquidate their inventory of bitcoin to pay for the transfer of miners and operating costs.
Furthermore, by looking at the 14-day moving average to compare data over the same period as the difficulty adjustment window and tracking the rate at which miners are sending bitcoin to exchanges, we see that miner sell-offs on digital currency exchanges have largely remained between 300 and 500 per day throughout last year and the first quarter of this year, and that current exchange miner selling pressure is actually significantly lower than it was during this time period. In March of this year, the flow of bitcoins from miners to digital currency exchanges was around 500 per day, while by June it was down to 200 per day.
Not only that, but by reviewing the bitcoin situation on some of the monitored OTC trading platforms, we also found that OTC exchanges were another major channel for miners to dump bitcoin. In fact, there is a strong correlation between OTC trading and changes in market trends, with Bitcoin OTC trading volumes showing a “down” trend throughout 2021. Compared to April through June, when OTC bitcoin volume remained between 8,000 and 6,000, the OTC market has seen a net outflow of only about 1,134 bitcoins in the past two weeks.
Next, we look at the total balance held in miners’ wallets to see if bitcoin miners are liquidating their inventory to cover the risks and costs incurred in relocating their miners. The data shows that since Bitcoin hit a price low on January 27, miners have added a total of 10,000 Bitcoins to their inventory, or 7.6% of the total Bitcoins mined, suggesting that miners have distributed 92.4% of their “inventory” in that time. In addition, a total of around 7,000 bitcoins were spent in miners’ wallets in early June, which is likely when a miner or group of miners began liquidating their bitcoins in preparation for the migration of their mining machines.
Low Institutional Demand
Looking back at the golden period of bitcoin price gains in 2020 and 2021, we see that the main driver was increased institutional demand, with the most notable of these being the one-way flow of bitcoin into the Grayscale bitcoin trust, GBTC. as many traders tried to arbitrage, as a result, GBTC remained at a high premium in 2020 and early 2021. However, GBTC’s high premium status was not maintained, and since February 2021, they have had to trade at a discount to NAV. Currently, GBTC, a grayscale bitcoin trust, holds over 651,500 bitcoins, or 3.475% of the total supply of bitcoins in circulation.
This is in addition to two Canadian bitcoin exchange traded fund products: The Purpose Bitcoin ETF and The 3iQ Digital Asset Management QBTC ETF. of which, the total number of bitcoins managed by The Purpose Bitcoin ETF has been The Purpose Bitcoin ETF has been growing, with net inflows of 3,929 since May 15, which equates to 95.83 BTC per day, bringing the total bitcoin holdings of the bitcoin ETF to 21,597. Meanwhile, The 3iQ Digital Asset Management QBTC ETF has seen significant bitcoin outflows over the past two months and a significant drop in total holdings, bringing the bitcoin exchange traded fund’s current bitcoin holdings down to 12,975.
Although The Purpose Bitcoin ETF has more bitcoin under management than The 3iQ Digital Asset Management QBTC ETF in terms of volume at this stage, when the two are analyzed together, bitcoin outflows from the two bitcoin ETFs in June reached 8,037.
Not only that, but as an institution, the balance of tokens held by Coinbase Coinbase, the preferred trading venue for US institutional investors during the bull market, has also flattened out significantly, although Coinbase has had a period of consistent outflows of bitcoin since December of last year.
With the above analysis of institutions, we see that institutional demand still seems to be somewhat subdued.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/the-miners-are-not-the-ones-panicking-the-most-about-the-plunge-in-computing-power/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.