In a newly published research report, Nasdaq-listed cryptocurrency exchange Coinbase has suggested that the recent Bitcoin ($BTC) sell-off has been “almost exclusively” been carried out by short-term speculators, rather than by long-term holders.
In its report, Coinbase noted that its on-chain data suggests those holding BTC for six months or more have not been selling their holdings, while those holding onto the cryptocurrency for less than half of a year have been divesting of their holdings.
Long-term holders, Coinbase noted, own 77% of the flagship cryptocurrency’s circulating supply, down slightly from 80% at the beginning of the year, but far above the 60% seen in December 2017, before the last Crypto Winter started.
Per the exchange’s analysis, long-term holders controlling such a large percentage of BTC’s supply is a “positive sentiment indicator,” as the firm believes these holders “are less likely to sell BTC during turbulent periods.” Coinbase’s report adds:
Thus, even if retail demand has fallen sharply as is typical of bear markets, the supply vs demand situation remains in balance due to the bitcoin retention of these longer term holders providing a stable base of ownership.
Coinbase’s report also focused on how Bitcoin miners have been stressing cryptocurrency lenders as BTC’s price falls and credit conditions tighten, while energy costs keep on rising. Per Coinbase, various miners moved from raising capital in equity towards debt, in part through loans secured by their own mining equipment.
Mining equipment’s value has been plunging, which could mean miners will be forced to put up some of their BTC reserves as collateral – or sell their holdings for cash – to meet their loan obligations.
The report details that among the top 28 public mining companies, which represent 20% of Bitcoin’s hashrate, around 13,0000 BTC has been sold so far this year, representing 19% of their reserves. These companies, the firm added, are sitting on 55,000 BTC that can still be sold to meet their loan obligations.
In total, Coinbase noted that all bitcoin miners hold around 800,000 BTC, meaning public miners’ holdings represent 6.8% of the total. Nevertheless, the firm estimated that even if BTC dropped to $10,000, they would still have reserves to last around 120 days, liquidating 16 BTC per day from their reserves.
From a market perspective, assuming this represented ~$1.7M in daily BTC sales, we think that would be unlikely to have a material impact on the price given that there is ~$6B in average daily BTC volumes on exchanges.
The report notes the firm would “need to consider the other loans sitting on public miners’ books for a more accurate accounting.”
As reported, JPMorgan analysts led by Nikolaos Panigirtzoglou are seemingly concerned that the cost of producing one Bitcoin has dropped from around $24,000 at the start of June to around $13,000, which may be negative for the cryptocurrency’s price because of added selling pressure.
The analysts noted that the drop in production costs is almost entirely due to a decline in electricity use as proxied by the Cambridge Bitcoin Electricity Consumption Index. The change is in line with miners’ efforts to remain profitable as they deploy more efficient mining machines and remove less efficient miners.
The analysts added that the cost of production is perceived by some market participants “as the lower bound of Bitcoin’s price range in a bear market.” Last month, JPMorgan’s strategists noted that miner BTC sales could be pressuring the cryptocurrency’s price into the third quarter of the year.