Bitcoin is approaching its fourth mining reward halving in just eight days, an event that automatically cuts the rate of new supply expansion by 50%. This event, which occurs every four years, has traditionally signaled the start of extended bull markets.
However, before this critical milestone, Bitcoin Cash (BCH), a derivative of Bitcoin (BTC), is signaling caution, urging traders to temper their expectations for an immediate price surge following the halving.
Perpetual Futures Contracts Tied To Bitcoin Cash Has Plummeted By 70%
The surge in Bitcoin Cash, a cryptocurrency born in 2017 from a hard fork of the original Bitcoin blockchain, lost momentum after reaching a peak of over $715, coinciding with its parent blockchain reducing its per block coin emission to 3.125 BCH on April 4. Following this event, BCH prices have fallen by 15% to $604, according to CoinDesk.
The notional open interest, or the total dollar value of active perpetual futures contracts tied to Bitcoin Cash, has plummeted by 70% to $376 million within a week, as reported by CoinGecko. Additionally, at the start of this week, the annualized perpetual funding rates on major exchanges shifted to negative, reflecting a reduction in bullish positions. A negative funding rate suggests that perpetuals are trading below the spot price of the underlying asset.
Algorithmic trading firm Wintermute has observed that Bitcoin Cash is often used as a stand-in for BTC in anticipation of Bitcoin’s upcoming halving, which could lead to selling pressure on the leading cryptocurrency after April 20. Wintermute noted in a newsletter that there has been brisk trading in Bitcoin Cash as a speculative proxy for Bitcoin’s halving, highlighting an intriguing trend in funding rates with perpetuals trading below spot.
Multiple analysts have cautioned that BTC may have already factored in the expected slowdown in supply growth and might experience a drop in a typical “sell the news” scenario after the halving. JPMorgan, the investment banking giant, predicts a sell-off to $42,000 once the excitement over the halving wanes.
Post-Halving Sales By Miner Could Overpower Market Bulls
Bitcoin is currently trading at $70,700, marking a 67% increase since the beginning of the year, by the time of writing. The cryptocurrency recently exceeded its 2021 high, setting a new record above $73,000 well before the anticipated halving event. Historically, Bitcoin has reached new highs several months following a halving.
10X Research has indicated that post-halving sales by miners could pose challenges for market bulls attempting to drive prices higher in the upcoming summer. Markus Thielen, founder of 10X Research, stated that miners are expected to sell approximately $5 billion worth of Bitcoin following the halving. This expected sell-off could extend for four to six months, potentially leading Bitcoin’s price to stabilize or move sideways as it has in similar past scenarios.
Bitcoin miners are responsible for solving complex mathematical problems to verify transactions and add new blocks to the blockchain, earning BTC as rewards. The upcoming halving will slash these rewards by half, reducing the incentive per block.
