Will miners crash the price of coins before the halving?

Keith Wareing

Odaily Planet Daily Translator | Moni

Since Bitcoin encountered sudden selling pressure on March 13, the market seems to have slowly shown strength to recover, but many people are wondering whether this rebound can continue or is it a "dead cat bounce" to a lower point?

(Note from Planet O-Daily: Dead cat bounce is a stock market jargon that refers to a situation where stock prices rebound quickly in a short period of time after a long period of decline, and then continue to fall, just like a cat falling from a tall building, which generally does not kill it.)

In this article, we will not only look at analyzing the charts, but also what exactly caused the Bitcoin price to plummet by 50% on March 12. Supporting data shows that some short-term Bitcoin holders sold 281,000 BTC, causing the market to crash.

Did Bitcoin Miners Sell Over 250,000 Bitcoins?

Coinmetrics published an article on March 17. By analyzing on-chain data, they found that the "culprit" that caused the Bitcoin crash on March 12 may not be the "die-hard HODLers" or the new holders, but some short-term Bitcoin holders.

According to data cited by Coinmetrics, during the period of intense volatility in the cryptocurrency market, 281,000 BTC were moved among addresses that held Bitcoin for more than 30 days, while only 4,131 BTC were moved among addresses that held Bitcoin for more than a year. In fact, people found that when the price of Bitcoin rose by 30% in early 2020, not so many BTC changed hands, so from this perspective, people seem to be more susceptible to panic than "fear of missing out (FOMO)". However, we must consider a question, namely: what is the potential motivation for such a large amount of Bitcoin to be sold at a low price?

For an industry insider, this seems to open up a very real possibility that perhaps those who caused the price of Bitcoin to plummet this time are actually the same people who stimulated the price of Bitcoin to rise in early 2020.

As shown in the figure below, Bitcoin has been in a downward horizontal channel since June 2019, but this trend seems to have bottomed out on January 4, 2020, after which we witnessed Bitcoin prices take off in an upward channel. However, amid the cheers in the market, no one seems to be considering the question: Why is Bitcoin rising at this time?

Is it the upcoming Bitcoin block reward halving? Is it the increased difficulty of mining? Is it because a large number of institutional investors are preparing to enter the market? Or is it related to all of these factors?

What if miners stop selling Bitcoin?

If we calculate that about 1,800 new Bitcoins are mined every day, this means that 122,400 Bitcoins were mined between January 4 and March 12, 2020, which is about 50% of the funds recovered by short-term Bitcoin holders, who usually do not receive more short-term gains than the Bitcoin they just mined.

Why do miners cause the Bitcoin market to crash?

Of course, we have to acknowledge the fact that no one knows everything, so most of the time we are making theoretical assumptions based on supporting data. However, there are some reasons that may make it easier to understand why large miners may be "destroying" the Bitcoin market, such as:

1. Liquidate leverage competitors (many small miners hedge on leverage trading platforms such as BitMEX);

2. Increase your market share before the “halving”;

3. Eliminate large market manipulators (such as PlusToken fraudsters and some institutional investors) before the halving.

These scenarios may be reasonable, especially considering that the Chinese computing power market plays a pivotal role in the Bitcoin industry, and the current COVID-19 epidemic has almost created a "perfect" black swan event. Therefore, some large miners may use the current environment to gain market dominance and regain control over prices. After all, if miners cannot control prices, the "block reward halving" that is about 50 days away will not have any impact.

Have questions? Let's zoom in on time

When you zoom in on the Bitcoin "one-day" analysis chart, you can see that miners may have stopped selling Bitcoin. The Bitcoin price surge in early 2020 may have been more of a sudden event, as the market has since resumed the same downward channel as in the second half of 2019.

We may never know the real reason for the above situation due to the massive sell-off in the market. But what is certain is that as expected last week, the price of Bitcoin rebounded from the support level of the descending channel to $4,400 after a brief plunge. After that, the price of Bitcoin began to hold the upper middle of the ascending channel, around $5,800. If it cannot hold this price, it is likely to test the support level of $4,200. If it can break through $5,800, then $7,200 will be the key resistance level for Bitcoin to break through and flip to completely get out of the descending channel.

Mining difficulty reduced

Mining difficulty has been on the rise since the beginning of 2020. But on the other hand, perhaps because the market sees a potential price increase in Bitcoin, the mining difficulty increases, so mining difficulty can be seen as an effective market indicator.

However, due to the unpredictable COVID-19 outbreak, we will see a sharp drop in global stock markets and a double-digit drop in Bitcoin. At the time of writing, according to BTC.com data, the Bitcoin network difficulty is 16.55 T. There is still 1 day and 19 hours before the next mining difficulty adjustment, and the next difficulty is expected to drop by 13.05% to 14.39 T. Perhaps only time will tell whether the mining difficulty will have a negative impact on the price of Bitcoin.

The annual trend suggests that the price crash of Bitcoin may just be a self-correction. In fact, from historical data, every Bitcoin block reward halving is preceded by a price drop, which may be a "punishment" for Bitcoin holders. The next chart may help you visualize what may happen in the coming weeks and months.

Similar to the stock-to-flow chart, this chart actually conveys an important message: you need to continue buying Bitcoin at this price.

Just like S2F is a “hindsight” market analysis model, the above analysis chart does not provide any financial advice to investors, but this analysis chart does show a fact: we may be in the period between “before halving” and “after halving”, which is the blue “sell” area.

As a Bitcoin "HODLer" and "Trader", another thing expressed by the above picture may make everyone feel a little relieved, that is: there are more buying opportunities than selling opportunities at present, and if the price of Bitcoin continues to fall, it may also be regarded as a "buying opportunity". When you do not regard the price drop as asset depreciation, you may get some psychological comfort.

Bullish scenario

Let’s be realistic and look ahead to the week ahead. If Bitcoin can hold $5,800 support, all eyes will be on $7,200 as the most critical level to break through. If $7,200 is successfully broken, the next resistance level is expected to be around $8,000, and we can even start to think about $10,000.

Bearish scenario

At the same time, we cannot ignore the current state of global economic turmoil. If Bitcoin fails to maintain the $5,800 support level, then we are likely to reconsider the $4,200 low.

While a drop below $4,200 is unlikely, if it falls below that level, the last support level may be $2,760 - why $2,760? Because this retracement level is 80% of the 2019 high of $13,800. Next, if Bitcoin cannot rebound at $2,760, then we can fully expect Bitcoin to fall to levels below $1,000.