Bitcoin struggles as bullish sentiment wanes

Bitcoin fell to $65,487 on Monday, driven by profit-taking by long-term holders and continued net outflows from US Spot Bitcoin ETFs further dampening waning bullish sentiment.

Last week, Bitcoin briefly dipped below $65,000 for the first time in a month as ETF net outflows topped $600 million and the Federal Reserve signaled just one rate cut for 2024. BTC tested the medium-term uptrend around the 50-day retracement. average $66,000. Since June 5, BTC prices have fallen from $71,000 to just over $65,000, influenced by a strong dollar, a shift away from risk assets and growth in traditional equity indices.

Long-term Bitcoin holders and miners have been the biggest sellers in the past two weeks, with little indication of renewed buying interest, according to a report by chain analysis firm CryptoQuant. Data from CryptoQuant indicates that whales, or large holders of Bitcoin, have sold more than $1.2 billion worth of BTC in the past two weeks, likely through OTC brokers rather than on the open market. Analysts noted that traders are not increasing their Bitcoin holdings, and demand growth from large holders remains weak. Additionally, stablecoin liquidity has continued to slow, growing at the slowest pace since November 2023.

Source: CryptoQuant

This selling activity is reflected in the declining UTXO (unspent transaction output) age groups tracked by CryptoQuant. A decrease in UTXO age bands usually indicates increased Bitcoin activity and sales, while an increase suggests more holding. The current trend of falling UTXO age bands indicates a lack of demand. Market observers believe some miners are shifting their focus to the booming AI sector due to declining mining rewards after halving. With AI firms demanding energy-intensive data centers, Bitcoin miners generate revenue from sales to AI firms.

Microsoft is building large AI data centers in Arizona and Wisconsin, which require large amounts of electricity, straining power grids. By 2026, AI is expected to consume 40 gigawatts (GW) of the 96 GW global power demand from data centers, up from 49 GW in 2023. There is an opportunity for Bitcoin miners to help stabilize power grids by adjusting energy consumption in real terms. time. This ability to balance grids is crucial as renewable energy production fluctuates. States like Oklahoma and regions like Texas and Iceland are taking advantage of Bitcoin mining to manage electricity supply and demand. Bitcoin miners provide consistent demand, which improves the financial viability of renewable energy projects.

Hashrate set to drop?

The relentless growth of Bitcoin’s (BTC) hash rate over the past two years may finally be slowing down, providing some relief to miners as extreme summer heat waves force the curtailment of some operations in the US. Miners have faced squeezed profit margins in a crowded sector, especially after the halving reduced their mining rewards by 50%, while the hashrate continued to reach new all-time highs. This hashrate growth has been driven by previously purchased mining rigs coming online and miners upgrading their fleets with more efficient machines to remain profitable. For example, on May 25, the hashrate climbed to a record high of 658 exahash per second (EH/s), according to Luxor’s Hashrate Index data.

This growth is expected to slow as North America enters the summer heatwave season. Miners use powerful machines that generate a lot of heat, and managing this heat is a major operational challenge. During the summer, miners need more power to cool their machines or may have to stop operations due to the high energy demand of residential air conditioning. Many miners have to curtail operations during summer months due to overheating and increased residential energy use, triggering demand response clauses in their power purchase agreements.

This seasonal phenomenon has historically led to lower hashrates during the summer months, reducing the difficulty of mining Bitcoin. “As we enter the summer months in the United States, we’re eager to see if warm weather will force miners to limit hashrate growth, suppressing hashrate growth like we saw in 2022 and 2023,” said Colin Harper, Head of Content and research at Luxor Hashrate Index.

The hashrate has already begun to decline since hitting an all-time high in March, falling 10% to 589 EH/s as of June 17, according to Hashrate Index data. With most miners located in the US, especially in hot states like Texas, downtime in North America is likely to affect hashrate growth. About 36% of all Bitcoin mining takes place in the United States.

Make Bitcoin Great Again

President Trump aims to increase North America’s Bitcoin footprint. In a speech to libertarians this month, Trump drew applause by vowing to “stop Joe Biden’s crusade to crush crypto. I will ensure that the future of crypto and Bitcoin will be made in the US, not driven overseas I will support the right to self-preservation for the nation’s 50 million crypto holders,” he declared. “With your vote, I will keep Elizabeth Warren and her goons away from your Bitcoin. And I will never allow the creation of a central bank digital currency.”

Trump has framed crypto as a national and energy security issue, emphasizing its importance to the fossil fuel industry, which he has pledged to protect. His campaign also announced that it would become the first major presidential campaign in history to accept donations in cryptocurrency, promising to “build a crypto army to propel the campaign to victory on November 5.”

As well as a stagnant hashrate, the Bitcoin network has experienced a notable decrease in average block size and transaction rates, coinciding with the drop in price. The reduction in block size, which measures the amount of transaction data included in each block, marks a sharp decline in Bitcoin (BTC) blockchain activity, which hit an annual low on June 7. The network’s transaction per second (TPS) rate also fell in June, indicating reduced activity and mining profitability due to reduced post-halving BTC block rewards.

The halving in April reduced block rewards for miners by 50%, reducing their profits and incentives to contribute to blockchain activity. TPS in June ranged from highs around 28 TPS to lows below 4.5 TPS in June, with an average of 9.12 TPS at the time of writing.

Bernstein Remains Bullish

Bitcoin and crypto-linked stocks are undervalued and poised for institutional adoption, according to a report by Bernstein. Bernstein acknowledges that crypto-skeptics argue that the mock Bitcoin exchange-traded fund (ETF) trade is over, with early allocations mainly from retail investors and most institutional demand focused on the “basis cash and carry trade” rather than new net long positions. However, analysts Gautam Chhugani and Maihka Sapra see Bitcoin ETFs on the verge of approval at major wirehouses and major private banking platforms in Q3/Q4. Spot Bitcoin ETFs were first approved in the US in January, greatly increasing access to the world’s largest cryptocurrency.

The institutional basis trade is seen as the “Trojan horse for adoption,” with investors now considering net long positions as they become more comfortable with improving ETF liquidity. The base trade involves buying the spot Bitcoin ETF and selling the Bitcoin futures contract simultaneously, waiting for the prices to converge. Bitcoin ETF inflows are expected to accelerate in the third and fourth quarters. The next phase of adoption will be driven by large advisors endorsing ETFs and increasing allocation space from existing portfolios. Bernstein projects bitcoin to reach a cycle high of around $200,000 by 2025, $500,000 by 2029 and $1 million by 2033.