Bitcoin's demand has seen a very sharp decline since April. The reduction in spot ETF purchases in the U.S. as well as declining whale holdings have contributed to this downturn. Meanwhile, long-term holders continue to accumulate Bitcoin at record rates, while short-term holders, who bought during the 2024 rally, are now suffering unrealized losses. Additionally, Bitcoin mining costs have surged post-halving, with operational expenses and mining difficulty increases pushing the cost of mining per Bitcoin to almost $52,000. Despite these challenges, some analysts suggest that the worst may be over.
Bitcoin Demand Drops
Bitcoin's demand has been on a steady decline since April, and recent data even shows it approaching negative levels. A report from CryptoQuant revealed that the apparent demand for Bitcoin has dropped quite a lot, moving from a 30-day growth of 496,000 BTC in April to a negative growth of 25,000 BTC.
This demand metric is calculated by analyzing the difference between the daily Bitcoin block subsidy and the daily change in the amount of Bitcoin that has remained unmoved for over a year.
Naturally, the decreasing demand has impacted Bitcoin's price, which fell from around $70,000 in April to a low of close to $51,000 by early August. Despite this correction, Bitcoin has still managed to post a 30+% return year-to-date. One of the main drivers behind this slowdown in demand seems to be a reduction in purchases by spot exchange-traded funds (ETFs) in the United States. In fact, acquisitions dropped from 12,000 BTC in March to an average of 1,300 BTC in the week of Aug. 11-17.
Daily change in total Bitcoin holdings (Source: CryptoQuant)
BTC’s dwindling demand is also proven by the declining price premium for BTC trading on Coinbase. After reaching a 0.25% premium in early 2024, coinciding with the launch of ETFs, the premium has since dropped to 0.01%. Now, analysis suggests that a recovery in spot ETF purchases could be critical when it comes to boosting Bitcoin's demand and potentially sparking a price rally.
Despite the waning institutional demand, long-term Bitcoin holders have been accumulating the digital asset at unprecedented rates. The total balance of addresses that have never spent or sold Bitcoin is increasing at a record-high monthly rate of 391,000 BTC. This surge in demand from permanent holders is outpacing the levels seen in the first quarter of 2024, when Bitcoin’s price exceeded $70,000.
Total whale holdings (Source: CryptoQuant)
On the other hand, whales have reduced their total holdings. The 30-day percentage change in whale holdings has slowed from 6% in February to just 1% currently. Historically, a monthly growth rate exceeding 3% in whale holdings has been associated with rising Bitcoin prices.
Short-Term BTC Holders Suffer
On Aug. 5, Bitcoin's price crashed by more than 15% to a six-month low of $49,050. Glassnode analysts described this correction as an "overreaction" by short-term holders, who have held Bitcoin for less than 155 days.
With Bitcoin's price hovering around $58,800, these short-term holders are now holding their coins at an unrealized loss. This group largely includes investors who bought Bitcoin during the 2024 rally when it reached an all-time high of $73,835 in March.
According to the report from Glassnode, short-term holders have borne the brunt of the losses during the recent downturn. The market value to realized value (MVRV) ratio for this group has dropped below the equilibrium value of 1.0, indicating that they have carried the majority of the losses after the market correction. While this situation is common during bull markets, the report also warns that if the STH-MVRV remains below 1.0 for an extended period, it could lead to investor panic that can potentially trigger a severe bear market.
Short term holder MVRV 30D-MA (Source: Glassnode)
Glassnode suggested that the recent price drop might have been an overreaction by new investors, driven by the high unrealized losses they were experiencing. Analysts examined the deviation between the spent short-term holder cost basis and their holding cost basis to assess the extent of this overreaction. They found only a slight deviation between these metrics throughout the current cycle, indicating that the market sell-off below $50,000 may have been a modest overreaction.
As long as Bitcoin's price remains below $59,000, short-term holders will likely remain at a loss. At press time, BTC is trading hands at $59,374.73 after its price dropped by more than 2% over the past 24 hours. BTC was also in the red by about 2.6% on its weekly time frame.
Bitcoin price chart 1D (Source: CoinMarketCap)
Several factors, including ongoing outflows from spot Bitcoin ETFs, declining Bitcoin miner profitability, and fears of negative macroeconomic events, might be contributing to BTC’s price struggle. The upcoming release of the United States weekly jobless claims data and the flash Purchasing Managers’ Index (PMI) on Aug. 23 could play a crucial role in Bitcoin's next price movement.
Bitcoin Mining Costs Surge
BitFuFu, a cloud mining company affiliated with Bitmain, recently released an unaudited financial and operational report for Q2 2024, which ended on June 30. The report revealed a huge increase in the cost of Bitcoin mining.
The average cost to mine each Bitcoin surged to $51,887, which is a big jump from $19,344 during the same time in 2023. This sharp increase is mostly attributed to higher electricity and operational costs, as well as the April 2024 Bitcoin halving event, which ramped up mining difficulty while reducing Bitcoin rewards by 50%.
Despite the rising costs, BitFuFu still managed to expand its mining operations. The company’s mining capacity increased by 62.5%, reaching 24.7 exahashes per second (EH/s), compared to 15.2 EH/s in Q2 of 2023. This expansion has translated into an almost 70% increase in total revenue.
The company ended up earning $129.4 million in Q2 of 2024, up from $76.3 million in the same period last year. The growth in revenue is largely driven by the company’s expanded cloud-mining services, which generated $77 million during the quarter.
In a recent interview with CNBC, Matthew Sigel, the head of digital assets research at VanEck, suggested that the forced selling of Bitcoin is now behind us. According to Sigel, the current state of the crypto market and Bitcoin’s price follows a “typical seasonal pattern” seen one to three months after a halving event.
