Bitcoin [BTC] has been exhibiting a lot of volatility in the last few days with no clear direction in price. The investors are torn between the pressures arising due to COVID-19 and the bulls looking to long the halving narrative.
Halving will not only reduce the rate of supply of Bitcoin but also affect the selling pressure from the miners. Due to its intrinsic design, BTC rewards need to be sold off to cover the associated electricity cost. Hence, the reduction in the selling volume is primarily responsible for the bullish price.
However, Willy Woo, leading on-chain analyst, notes via an unnamed source that there is an uncounted entity in the discussion – crypto exchanges. He notes,
We’re over-estimating the impact of the halvening in this cycle. In 2020, unlike 2016, we now have 1200 BTC per day in a fees market from exchanges selling their BTC earnings to fiat.
He further adds this variable to the over-all sell pressures from the miners; which is around 1800 BTC. Hence, 2100 BTC (900 + 1200), post halving compared to 3000 BTC, now – a 30% reduction, not 50%. He adds that considering the above fact, the ‘floor price’ of Bitcoin is likely to be around $7-8k.
On Miner Capitulation
Miner capitulation leads to accelerated bottom followed by bullish accumulation. It has been useful in identifying bottoms in Bitcoin. According to Woo, the weak miners are dead, and the capitulation seems to have occurred. He tweeted,
Hash Ribbons recovering (assumes no lower low), a reliable bottom signal, probably some miner capitulation during the crash. They last got culled in Dec 2018, only the strong remain, I don’t expect miners to add more sell pressure from here.
Furthermore, he also noted another bullish signal pointed out by the comparison between energy consumption and market capitalization.
But Transactions are Dropping
While the decreasing sell pressure is a positive indicator of price, the demand might be getting negatively affected as well. The drop in the on-chain transactions might continue to the reason for worry. The lockdown in several parts of the world is not only affecting trade, but also the transaction volume on Bitcoin.
The total transaction volume has dropped from over 250-300k transactions to 175k, with a drop in transaction fees as well.
Currently, the markets are undergoing an exceptionally odd crisis due to the pandemic spread of the virus. The miners seemed to have adjusted to shocks, while the traders are mulling under uncertain macroeconomic environment.
Do you think Bitcoin has bottomed? Please share your views with us.
