Bitcoin demand has been declining since April, attributed to reduced ETF purchases in the U.S. and declining whale holdings. Meanwhile, long-term holders continue to accumulate Bitcoin at record rates despite the rising mining costs post-halving.
Bitcoin Demand Declines
Bitcoin demand has been on a steady decline since April, with recent data showing it approaching negative levels. A report from CryptoQuant revealed that the apparent demand for Bitcoin has dropped significantly – 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 over 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. Acquisitions dropped from 12,000 BTC in March to an average of 1,300 BTC in the week of Aug. 11-17. The premium for BTC trading on Coinbase has also declined, reaching 0.01%. Analysis suggests that a recovery in ETF purchases could be critical for boosting Bitcoin 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. On the other hand, whales have reduced their total holdings, with the 30-day percentage change in whale holdings slowing from 6% in February to just 1% currently.
Issues for Short-Term BTC Holders
On Aug. 5, Bitcoin's price crashed by more than 15% to a six-month low of $49,050. Analysts from Glassnode 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 Glassnode, the market value to realized value (MVRV) ratio for this group has dropped below the equilibrium value of 1.0, indicating that they have borne the brunt of the losses following the market correction. Analysts warned that if the MVRV for short-term holders remains below 1.0 for an extended period, it could trigger investor panic potentially leading to a severe bear market. 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 cost basis of short-term holders and their holding cost basis, finding only a slight deviation throughout the current cycle, indicating that the market sell-off below $50,000 may have been a modest overreaction.
Surge in Bitcoin Mining Costs
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 significant increase in Bitcoin mining costs. The average cost to mine each Bitcoin surged to $51,887, a significant jump from $19,344 during the same period in 2023. This increase is primarily 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 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 translated into an almost 70% increase in total revenue, which amounted to $129.4 million in Q2 of 2024, up from $76.3 million during 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.
Despite the declining demand and rising mining costs, Bitcoin remains popular among long-term holders. The recovery of ETF purchases could be key to boosting Bitcoin demand and its price in the future.
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