After the US May CPI cooled down and interest rates remained unchanged, the three major US stock indices continued to hit new highs, but the cryptocurrency market failed to follow suit. QCP Capital believes that this is due to Bitcoin miners “surrendering” after the halving, which has limited price increases.
Earlier this week, after the US announced the cooling of the May CPI and unchanged interest rates, the three major US stock indices hit new highs again, but the cryptocurrency market fell into a slump. Bitcoin and Ethereum briefly surged to $70,000 and $3,657 respectively on the 12th, but have since fallen back to $67,000 and $3,500.
This has prompted the community to wonder why the performances of the two capital markets are so different. What went wrong?
QCP Capital: Bitcoin miners surrendering limits BTC price increase
QCP Capital, a digital asset trading company, believes that Bitcoin miners surrendering after the halving directly limits price increases.
Bitcoin miners rely on two sources of income: mining rewards and transaction fees, which must exceed mining costs in order to be profitable. Miners need to consider the following to avoid exiting the mining industry:
– Increase in transaction fee income
– Increase in Bitcoin price
– Decrease in mining costs
The completion of the fourth Bitcoin halving last month reduced the block reward for miners from 6.25 BTC to 3.125 BTC. Although the Bitcoin Rune protocol once allowed miners to earn lucrative transaction fees, the rapid decline in fees has led to more unprofitable miners exiting the industry. QCP Capital believes that this situation has limited the increase in Bitcoin prices.
As for how long this will affect Bitcoin prices, some analysts believe that as unprofitable miners exit mining, Bitcoin mining costs will decrease. Miners who are still operational may not be eager to sell their Bitcoin to fund their operations, which will to some extent alleviate selling pressure in the market in the future, limiting the short-term downside for Bitcoin.
QCP Capital states that the cryptocurrency market will experience a quiet summer, with lower trading volumes and no significant catalysts to drive the market.
Kaiko Warning: Sudden decline in transaction fee income may lead to miner sell-off
In mid-May, cryptocurrency research firm Kaiko also stated in its weekly report that trading activity usually slows down in the summer months, and liquidity dries up.
Additionally, the institution pointed out that Bitcoin miners typically view the Bitcoin they hold as liquid assets in their balance sheets so that they can sell their holdings to pay operating expenses. The report warned that with the decline in miner transaction fee income, the selling pressure from miners will increase.
According to Kaiko’s data, the total value of Bitcoin held by the two largest publicly traded mining companies in the US exceeds $1.6 billion. Marathon Digital holds 17,631 BTC, valued slightly above $1.1 billion, while Riot Platforms holds 8,872 BTC, valued at over $500 million.
Another cryptocurrency research institution, 10x Research, issued a warning in its April report about the post-halving trend of Bitcoin. Analysts predicted that miners might liquidate $5 billion worth of BTC post-halving, which could last for 4 to 6 months, leading to Bitcoin consolidating in the coming months.