Written by: BITCOIN MAGAZINE PRO AND LANDO
Translation: Blockchain in Vernacular
As Bitcoin prices stagnate and fall, miners and exchanges are running extremely low on reserves, a phenomenon that may provide important clues to understanding Bitcoin’s current state.
By all accounts, we should be on the brink of a bull run right now. Bitcoin’s price has been hovering between $60,000 and $70,000 for months, with $70,000 just a stone’s throw away from Bitcoin’s all-time high of $73,000. Logically, the community should be excited that we’ve been able to maintain high prices for so long, as Bitcoin’s previous record-breaking price surge was followed by a sharp drop within three months. Yet, despite this impressive achievement, sentiment in the Bitcoin community remains subdued. While there are multiple reasons to suggest that a bull run may be about to begin, there is also the expectation that the market could crash at any time. Why is this? How can a rational Bitcoin investor discern the truly valuable signals amidst the deluge of information?
A pair of interesting data points in the market have to do with the Bitcoin reserves held by companies in various industries. For example, the reserves held by Bitcoin trading platforms are currently at their lowest level in the past three years. There are many possible conclusions that can be drawn from this data alone, but it is particularly important in comparison with another data point: the reserves held by mining companies are at their lowest level in the past fourteen years! These two data points are actually caused by different forces in the chaotic market, so the actual conclusion is more complicated than it seems at first glance. In fact, the difference in years between the two records provides important clues to understanding the market.
First, this astonishing data from miners is best explained by the post-halving environment. Miners face a unique set of challenges after the 2024 halving, especially in the era of ETFs. Miners have had to struggle for months to usher in higher prices after each halving, but in this cycle, prices actually reached their highest point shortly before the halving. With this event, many companies have been forced to accelerate their normal plans to upgrade equipment, consolidate capital, and find new revenue sources, and current hash rate data shows that we are in a period of miner capitulation. In this environment, despite the leaders' outstanding performance, the overall pressure on the industry is actually forcing miners to sell, and the rate of sale is far higher than any halving in the past 14 years.
These sales are necessary for many mining companies to maintain basic operations, but they also have knock-on effects for Bitcoin itself. Bitcoin whale have been blamed for Bitcoin’s downturn by selling their assets at an exaggerated rate, but this analysis ignores the fact that many of these whale are actually miners. In other words, the industry’s actions to protect itself are combined with opportunistic actions by other large accounts to create a narrative that could shake confidence in Bitcoin. However, this is exactly why the importance of exchange reserves lies.
While miner reserves are at a 14-year low due to industry woes, exchange reserves represent an entirely different type of selling pressure. In fact, low exchange reserves are a clear sign that Bitcoin selling pressure has actually declined. After all, how can exchanges be short of Bitcoin if everyone is selling? Who is buying these assets? Conversely, low exchange reserves indicate that the market is in a period of high accumulation, although it is unclear who is buying these shares. Of course, the ETFs themselves may be candidates for some of the action, but much of the trading occurs in the hands of individual traders.
Small traders have been identified as the defining moment of this price period, as a host of psychological factors could be the biggest practical obstacle to Bitcoin’s continued rise. After all, there are a number of underlying economic factors that have actually been encouraging lately. However, the various reasons that have led large numbers of people to buy or sell Bitcoin can include some discouraging choices. For example, Bitcoin has been below the $70,000 price point for nearly two weeks, and the result is a large number of short positions betting that this trend will continue. From a certain perspective, if Bitcoin breaks through this threshold, everyone will profit, but if it does happen, a staggering $1.67 billion in these short positions will evaporate overnight. These collective bets on Bitcoin have real and tangible effects on the ecosystem, and Bitcoin supporters need to find countermeasures to overcome this effect.
Unfortunately, if abstract bets on Bitcoin are hoping for further price declines, bullish bets on Bitcoin have been struggling. New data from the Chicago Mercantile Exchange shows that the resurgence of Bitcoin futures arbitrage and basis trading has been almost entirely driven by new ETFs. Specifically, CME’s Bitcoin futures market has grown 80% since the ETF was approved, according to data released on June 20, and ETFs themselves are a valuable tool when conducting such trades. However, ETFs have been bleeding badly this week, with the entire industry seeing five consecutive days of net outflows totaling about $900 million. Such losses are far from encouraging for Bitcoin buyers, and the German government’s quiet sale of $325 million in confiscated Bitcoin has only added to the gloom.
Despite these ominous omens, there are still many positive signs in the market. For example, Bitcoin has finally regained dominance of its blockchain, with more than 90% of on-chain transactions being regular BTC transactions for the first time in months. Previously, protocols like Ordinals and Runes caused severe congestion on the blockchain, but Bitcoin transfers now far outnumber these protocols. In addition, analysts have identified a series of factors that suggest Bitcoin may be near a price bottom, especially low exchange reserves that strongly suggest low selling pressure. These factors may seem insignificant at first glance, but Bitcoin's rebound is not unexpected.
In general, it is difficult to accurately predict where the price will go in the coming days or weeks. The main thing that can be inferred from the low reserves is that Bitcoin miners have contributed to the selling pressure on the currency, but that selling pressure is finally waning. Even with the German government unexpectedly dumping a large amount of Bitcoin into the market, market sentiment still suggests that traders are quietly accumulating. Regardless, Bitcoin will persist, and it is important to remember that we have broken a record ourselves. Prices have never stayed this close to their all-time highs for so long after a major surge, and another surge is likely in the future. For Bitcoin, we will hold for the long term.
