Earlier today (May 9), prominent crypto analyst Willy Woo explained that, after the upcoming Bitcoin halving, the biggest sell pressure on Bitcoin will be from crypto exchanges and not miners.
Bitcoin's next/third block reward halving event is expected to occur in less than three days from now, or to be more precise, around 04:00 UTC on May 12 (i.e. around 23:00 Eastern Time on May 11).
Here is what block reward halving means:
- every ten minutes, a new Bitcoin block is mined;
- at every block reward halving, the reward for mining new blocks is halved, i.e. 50% fewer bitcoins are generated by the network;
- block reward halvings are scheduled to occur every 210,000 blocks, i.e. approximately every four years, until Bitcoin's hard cap (or maximum supply) of 21 million bitcoins has been reached.
Although we can't know for sure what will happen to Bitcoin's price post halving, it is interesting that open interest on CME Group's Bitcoin futures set a new all-time high of almost $500 million on Friday (May 8).
Following Bitcoin's next halving, the mining reward will be 6.25 BTC per block, and Woo says that what will happen then is that "miners will cease to be the biggest sellers of Bitcoin" and that "the biggest sell pressure on Bitcoin will soon be from exchanges selling their BTC fees collected into fiat."
Next, Woo said that crypto exchanges, which usually receive trading fees in BTC, sell their BTC to earn fiat currency:
You can think of exchanges as tax agents on traders. That tax, extracted in fees in BTC, gets dumped onto the markets and sold for fiat. It’s similar to miners where coins gained by diluting the supply get dumped on the market that new demand needs to absorb.— Willy Woo (@woonomic) May 9, 2020
Woo goes on to explain that this kind of selling is different from the usual buying and selling by traders in that the latter are matched trades (which, therefore, results in no selling pressure on the market).
The real sell pressure on the market, according to Woo, comes from only two sources: miners and exchanges.
There’s only two unmatched sell pressures on the market. (1) Miners who dilute the supply and sell onto the market, this is the hidden tax via monetary inflation. And (2) the exchanges who tax the traders and sell onto the market.— Willy Woo (@woonomic) May 9, 2020
Woo then aruges that although major crypto derivatives exchanges, such as BitMEX, are useful in that they provide liquidity and enable traders to hedge their risk, post halving, they could be selling around 1200 BTC per day from the fees they earn, which will make cause them to become "the largest bearish pressure on Bitcoin" post halving.
Binance Co-Founder and CEO Changpeng Zhao (aka "CZ") liked this Twitter thread by Woo, but pointed out that Binance is not one of the guilty parties since in the case of Binance, most fees are in Binance Coin (BNB), and Binance tries to HODL most of these fees (rather than sell them to earn fiat):
Also, the head of Binance Futures, Aaron Gong, told news outlet CryptoPotato:
"Woo’s statement only might be valid on inverse futures, that contracts are settled in BTC and exchange fees are also being paid in BTC.
"In contrast, Binance Futures are settled in USDT and not inverse contracts. As such, it will not be a case for exchanges such as Binance."