BTC Selling Pressure: Lower ETF Demand and Unrealized Gains

The upcoming halving event, coupled with a decrease in purchases of Bitcoin exchange-traded funds (ETFs) and a large number of unrealized gains from traders, could result in a bearish trend for Bitcoin’s price. Research by CryptoQuant suggests that traders’ unrealized profits from Bitcoin’s recent rally are creating selling pressure. A possible slowdown in ETF purchases in the coming months could further contribute to downward price pressure. The Net Unrealized Profit and Loss (NUPL) indicator, which measures investor sentiment, has shown a warning sign with a reading of 0.7, indicating that investors may be ready to take profits and sell their Bitcoin holdings.

On March 17, the NUPL indicator reached 0.606, a slight increase from the previous day, despite recent price corrections. Julio Moreno, head of Research at CryptoQuant, believes that the combination of a slowdown in ETF purchases and traders selling to take profits could lead to a bearish outlook for Bitcoin’s price. The Bitcoin ETFs experienced one of their lowest net inflow days on March 14, with just $132 million in net activity, representing an 80% decline from the previous days.

The potential downward trend may not be as severe as previous bear markets. James Butterfill, head of Research at CoinShares, explains that institutional investors often engage in portfolio rebalancing strategies, which can help mitigate volatility instead of exacerbating it. He points out that volatility in the previous bull market in 2021 was 120%, whereas it is currently at 45% despite Bitcoin’s price surpassing all-time highs. This is likely due to the dampening effect of portfolio rebalancing.

Bitcoin ETFs have been in high demand, with cumulative net inflows surpassing $12 billion on March 15. As brokerage firms expedite the due diligence process to offer clients Bitcoin ETFs, industry insiders anticipate further demand. This influx of capital through Bitcoin ETFs is offsetting the negative impact of miners’ sales ahead of the halving.

The halving is a deflationary mechanism that reduces the reward for mining new blocks by 50%, thus decreasing the rate at which new Bitcoin are created. This year’s reduction will reduce miners’ rewards from 6.25 BTC to 3.125 BTC per block. The cost of mining remains the same or may even increase as miners strive to remain profitable after the event. CoinShares estimates that the average cost of production for crypto miners post-halving will be around $37,856. Butterfill notes that there is concern among investors regarding the halving’s impact on miners, but the average costs to mine Bitcoin vary greatly, with those with higher costs feeling the impact more severely.

Historically, miners tend to sell more of their Bitcoin reserves before the halving to maximize profits, and this year is no exception. Data from CryptoQuant shows that miner reserves are at their lowest level in two years, with 1.81 million Bitcoin on March 15. The halving event occurs every four years, with the next one expected around April 19, 2024.

2 thoughts on “BTC Selling Pressure: Lower ETF Demand and Unrealized Gains

  1. Understanding the potential trends and dynamics surrounding Bitcoin’s price is key to making informed investment decisions. The market is always evolving.

  2. James Butterfill brings up a great point about portfolio rebalancing strategies by institutional investors. It could help mitigate volatility rather than exacerbate it. 📊

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