Following the recent halving of Bitcoin’s (BTC) mining reward, analysts at the cryptocurrency exchange Bitfinex project that the market dynamics could shift dramatically, potentially making the cryptocurrency’s demand quintuple its supply. As of Saturday (April 20), the reward for mining each block of Bitcoin has decreased from 6.25 BTC to 3.125 BTC.
This reduction in mining incentives could significantly diminish the daily addition of new coins to the supply, which, according to Bitfinex, may now be valued at around $30 million. This is a substantial drop, equivalent to an amount five times less than the average daily demand observed in U.S. spot ETFs.
Bitcoin Halving Will Force Smaller Miners To Quit Their Operations
Analysts at Bitfinex have reported a significant decrease in the daily issuance of Bitcoin following the halving event, with the new supply of mined Bitcoin now estimated to be valued between $40 and $50 million in USD-notional terms, based on current issuance trends. This figure is expected to decline further to approximately $30 million per day, taking into account both active and dormant supplies as well as sales by miners, particularly as economic pressures force smaller mining operations to cease.
In contrast, despite a recent moderation and even a shift to net negative flows, the average daily net inflows from spot Bitcoin ETFs significantly exceed this figure, standing at over $150 million, the analysts noted.
Supporting these observations, data from Glassnode indicates a tightening in supply; since the halving, the total daily addition of new coins has fallen to around 450 BTC, a steep decline from the pre-halving four-year average of about 900 BTC. This change marks the onset of a supply squeeze in the Bitcoin market.
Some Miners Started Selling Their Bitcoins In Advance To Upgrade Their Facilities
In anticipation of the upcoming halving, Bitcoin miners strategically sold their reserves, which, coupled with the diversification of potential selling pressure through the introduction of spot exchange-traded funds (ETFs) in the United States, helped stave off a significant price decline, Bitfinex revealed. According to the crypto exchange’s weekly market report on April 22, this proactive selling by miners proved beneficial for the market in the short term.
Data from CryptoQuant indicated a substantial decrease in the amount of Bitcoin miners sent to exchanges, dropping over 70% from a daily average of 1,300 BTC in February—valued at $86.4 million—to just 374 BTC in March. Bitfinex suggested that this reduction in selling activity might be due to miners either selling their BTC holdings or using them as collateral to upgrade their equipment and infrastructure.
Following a halving event, miners’ revenues typically diminish, as observed this time with mining rewards halved to 3.125 BTC per block, equivalent to about $208,000 based on current prices. Historically, halvings have led to significant selling pressure from miners eager to maximize profits before their rewards are halved, potentially causing short-term market volatility and price drops.
However, Bitfinex noted that such negative market impacts are usually transient. Prices often rise and mining operations expand following halvings to compensate for the diminished rewards, as market dynamics adjust.
Investors Are Again Taking Direct Custody Of Their Coins
On January 11, a wave of nearly a dozen spot-based ETFs debuted in the U.S., providing investors with an opportunity to gain exposure to cryptocurrencies indirectly. Bitfinex anticipates that the ETFs’ average daily inflows, since their inception, will continue at a steady rate in the upcoming months.
As mentioned, before the recent halving event, miners, the entities responsible for creating new coins, significantly depleted their inventories to fund necessary upgrades for sustainable operations post-halving. According to data from Glassnode, in the six months prior to the halving, miner-associated wallets saw a reduction of over 18,000 BTC, bringing their total to 1.82 million BTC.
Moreover, Bitfinex has observed a trend where investors are increasingly opting to take direct custody of their coins, thereby reducing the supply available in the market. Analysts from Bitfinex have noted significant Bitcoin exchange outflows, reaching levels not observed since January 2023. This trend suggests a growing preference among investors to store their holdings in cold storage, likely in anticipation of future price increases.
Additionally, despite active sales by long-term holders, there has not yet been the typical price decline expected before a halving. Analysts interpret this as a sign that the market’s new participants are effectively absorbing the selling pressure.
At the time of reporting, Bitcoin’s price stands at $65,910, marking a rise of over 5% since the halving, which contradicts the anticipated price correction.
