The need for spot Bitcoin ETFs may have changed market dynamics, which could explain why the 2024 halving is special.
A huge amount of traders’ unrealized gains coupled with a slowing in inflows into spot Bitcoin exchange-traded funds (ETFs) could put adverse pressure on the price of Bitcoin following the impending halving event.
The head of research at CryptoQuant, Julio Moreno, claims that selling pressure is increasing due to unrealized gains from Bitcoin’s recent surge. In the upcoming months, a potential slowdown in the number of investors purchasing Bitcoin ETFs could put additional pressure on the price of bitcoin.
The study is supported by CryptoQuant’s net unrealized profit and loss (NUPL) indicator. The 0.7 level on the indicator is a warning sign that suggests investors in Bitcoin might be prepared to cash in on their gains, which would further drive down prices and intensify selling pressure.
Despite recent declines in the price of BTC, on March 17, the NUPL indicator reached 0.606, up 0.41% from the previous day.
Regarding potential price-depressing occurrences, Moreno stated, “For a bearish outlook for price: 1. Slowdown in ETF Bitcoin purchases and 2. Getting into the halving at a high level of unrealized profits for traders, as it is highly likely traders would sell to take profits.”
On March 14, the Bitcoin ETFs saw one of their lowest net inflow days, with just $132 million in net activity. This was an 80% decrease from the prior days and the lowest level of activity in eight trading sessions.
Though institutional investors usually use portfolio rebalancing tactics, which could reduce volatility rather than enhance it, a potential downward trend might not be as severe as prior bear markets. James Butterfill, CoinShares’ head of research
“The previous bull market in 2021 had 120% volatility. Now, it stands at just 45%, and prices have surpassed all-time highs. We think that portfolio rebalancing’s damping impact is to blame for this,” he stated.
Bitcoin ETFs have been very popular thus far. On March 15, the total net inflows into cryptocurrency products crossed the $12 billion threshold. Industry insiders predict that demand will only increase as brokerage houses expedite their due diligence in order to provide clients with Bitcoin ETFs.
Miners Should Ready Themselves for Impact
The deflationary dynamic of Bitcoin is being counteracted by capital coming through Bitcoin ETFs, which is hedging against the negative price implications of miners’ sales ahead of the halving.
The rate at which new Bitcoins are created is lowered by 50% as a result of the halving of the reward for mining new blocks. With this year’s decrease, block rewards for Bitcoin miners will drop from 6.25 BTC to 3.125 BTC.
On the other hand, as miners typically enhance operations to stay profitable after the event, the cost of mining stays the same or might even rise. According to CoinShares, the average cost of production for cryptocurrency miners after the halving will be $37,856.
The price performance of the miners year to date, according to Butterfill, “highlights investor concerns for the miners around the halving,” but “I believe many are being tarred with the same brush, so to speak,” given the wide range of average costs to mine Bitcoin that seems to have hit harder for those with higher costs.
