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Bitcoin chain data suggests miners expect a cut in half to increase Bitcoin price

May 2, 2020

As the coronavirus pandemic continues to develop and there are signs that quarantines are slowly increasing in Europe The eyes of the crypto community have returned to halving bitcoin (BTC). The event is only 10 days away and the price of Bitcoin seems to be behaving accordingly after rising by an incredible 23% to reach it a monthly maximum of more than $ 9,400 Earlier this week. According to Coinmarketcap, Bitcoin’s market cap is currently $ 163,602,397,587.

The cut in half Bitcoin, a widespread event in the cryptocurrency industry, is part of Bitcoin’s monetary policy The bitcoin mining reward halves every four years. That means that from May 11th will be issued 6.25 BTC every 10 minutesinstead of the current 12.5 BTC.

The next halving will be the third since Bitcoin was founded, and the event brings some encouraging views on the value of the asset.

Bitcoin chain data suggests miners expect a cut in half to increase Bitcoin priceBitcoin chain data suggests miners expect a cut in half to increase Bitcoin price

According to PlanB, the inventor of the much-discussed “stock to flow” model, the reduction in the bitcoin emission rate is intends to raise the price of Bitcoin in the long term. Recently the analyst said in a Tweet::

“In my opinion, the halving of #Bitcoin 2020 will be like in 2012 and 2016. According to the S2F model, I expect 10 times the price (order of magnitude, not exactly) 1-2 years after halving. The halving will be a success or a mistake for the S2F model. I hope this halving teaches us more about the underlying fundamentals and the impact of the network. “

However, there are different opinions when it comes to the price development of Bitcoin after halving. Some believe that this will undoubtedly lead to higher prices, while others believe that this factor is already taken into account in current prices as it is publicly known. Other investors are ignoring the importance of miners and giving rewards because they believe speculation is the only engine behind Bitcoin’s price.

Bitcoin mining activity deserves special attention

Yeah well Speculation is a driving force behind Bitcoin’s price In certain bullish or bearish cycles, supply and demand are always at stake. Miners are extremely important when it comes to understanding the price of Bitcoin are the only providers of new currencies on the market.

Miners create constant selling pressure by liquidating their newly minted coins to pay for their electricity and housing costs. While traders take advantage of short-term volatility, miners ultimately “dictate” Bitcoin’s price on the supply side.

Of course, this is not as linear as it sounds. Volatility also determines which miners can stay on the network If prices fall too low, some miners can fail when their business is no longer profitable. A good example of this is the famous drop in prices in March.

Miners are not the only market participants that create selling pressure, but the majority of the stock market volume does not represent real buying or selling pressure, but short-term movements that traders buy and sell repeatedly.

As such, miners are the only players who create constant selling pressure for freshly mined coins. With this in mind, it’s important to understand what the miners did as halving approaches, since their behavior can tell a lot about what the price of Bitcoin will be after halving.

The miners’ movements move the market

By analyzing certain transaction patterns via the Bitcoin blockchain, information can be extrapolated that complements trading strategies. For example, Joe Nemelka, a data analyst at CryptoQuant, a chain data company, recently said about Cointelegraph An increase in the influx of miners to the stock exchanges can indicate in-depth volatility.

According to Nemelka, the percentage is from Miners’ entries on exchanges compared to everyone else Tickets (other exchanges, wallets, etc.) is remarkable. As shown in the following graphic, some peak values ​​above 6% can also be observed in the percentage of mining flows compared to stock exchanges, which indicate a change in price developments.

Miner for exchanging the flow percentage

Percentage of flow from mining to exchange. Source: CryptoQuant

Miners are liquidating their Bitcoin stocks for a variety of reasons, and tracking these factors in conjunction with investor sentiment is helpful in identifying deviations and subtle trend reversals.

For example, if miners’ access to exchanges in a bull market is unusually high, miners can make profits at certain price levels and create increased selling pressure if they believe it would make sense to sell.

Conversely, a high market entry at a time when the price has dropped may indicate that a large number of mining companies are surrendering, a process that can signal a change in the market as the toughest miners stick to their BTC and you decrease later the selling pressure.

What are the miners doing?

While the “Mining Flow Percentage to Exchanges” data set allows market participants to see an increase in mining sales pressure, we can use the Miners Position Index Trends to identify trends in mining or holding Bitcoin.

Miner position index

Mine worker position index. Source: CryptoQuant

The graphic above shows that Miners have been holding Bitcoin since January, possibly hoping to sell it at prices after halving. Mason Jang, CryptoQuant’s CSO, told Cointelegraph:

“The MPI (Miner Position Index) highlights periods when the value of daily Bitcoin spending by miners has been extremely high or low in the past. MPI values ​​above 2 indicate that most miners sell Bitcoin. If if the IPM is below 0, it means the miners are less selling pressure, so buying BTC could be a good sign. “

Will history repeat itself?

In the past, the halving of Bitcoin was followed by a significant price increaseThis is also another point for a sharp price increase after the next fork. However, history does not always repeat itself, and although the data in the chain can help survive the next event, it is worth noting The cryptocurrency market has changed tremendously since Bitcoin was last halved in 2016.

CryptoCompare data also show this In 2020 daily trading volumes were recorded, which are consistently ten times higher than in 2016. To put this in perspective: In 2016, the total daily volume of Bitcoin in the spot trade rarely exceeded $ 1 billion. Fast forward to March 13, 2020, the major exchanges reached a record volume of $ 21.6 billion a day.

Daily spot volume from year to year

Total daily volume of spot operations year after year. Source: CryptoCompare

The graphic above shows how much the market has developed compared to previous years. Given the huge volume in 2020 and the fact that there are more market participants, the decrease in sales pressure from miners is likely to have a drastic impact on the overall sales pressure of Bitcoin. This means that the next halving may not result in a massive price increase for Bitcoin.

What can we do with it? While the halving for the price of Bitcoin was a historically bullish event, it doesn’t necessarily mean that it will always be.. While chain data is a great tool to complement trading and investment strategies, it should be viewed in a broader context.

The market has matured enormously since the last halving, and new entrants have contributed to higher trading volumes, and there are more transparent, responsible and regulated places. Also The current corona virus pandemic has shown that traditional expectations of market behavior can change quickly.

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