Miner and Exchange Reserves Hit New Lows as Bitcoin Flounders
Bitcoin’s price has stagnated for months near its all-time high. Low levels in reserve Bitcoin from miners and exchanges help illustrate market dynamics.
As Bitcoin’s price has stagnated and undergone downturns, the remarkably low levels of reserves from both miners and exchanges could provide a vital clue to understanding Bitcoin’s situation.
By all accounts, we should be on the verge of a bull market right now. Bitcoin’s price has hovered within the range of $60k–$70k for months now, and the $70k price point is a stone’s throw away from Bitcoin’s all-time high of $73k. By all rights, the community should be ecstatic that we’ve managed to keep an elevated price level for this long, as Bitcoin’s previous record-breaking price spikes have all seen a sharp turn downward well before the 3-month mark. And yet, despite this impressive accomplishment, the mood among Bitcoiners is dour, if anything. Although there has certainly been speculation that the bull market may start soon for a variety of reasons, there is also plenty of expectation that the market may crater any day now. What can account for this? How can a sensible Bitcoin investor separate the signal from the noise?
An interesting pair of data points in the market are related to the Bitcoin reserves held in the firms of various relevant industries. For example, the reserves held on Bitcoin exchanges are currently at their lowest level in the last three years. A variety of possible conclusions could be drawn from this data alone, but it’s especially relevant compared to another figure: the reserves held by mining companies are at the lowest level in the last 14 years! These two figures in themselves are actually caused by differing forces in a chaotic market, so the actual conclusions are a little more complicated than first glance might suggest. Indeed, the difference in years between these two records gives a vital clue to understanding the market.
To start with the miners, this staggering figure is best explained by the post-halving environment. Mining companies have struggled through a unique set of circumstances in the wake of the 2024 halving, especially in light of the ETF era. Miners have always had to struggle for multiple months after a halving before much greater prices, but in this cycle, the prices were actually highest shortly before the halving. In the wake of this event, many firms have been forced to accelerate the normal programs of upgrading equipment, consolidating capital, and identifying new revenue streams, and data from the hash rate currently suggests that we are in a period of miner capitulation. In this environment, although the leaders are certainly performing well, the reality is that industry-wide pressures have created incentives for miners to sell, and to sell at rates far higher than any of the halvings of the last 14 years.
These sales have been necessary for many mining companies to keep the lights on, but they’ve also had knock-on effects for Bitcoin itself. Bitcoin whales have been selling off assets at exaggerated rates, which has already been blamed as a cause for Bitcoin’s doldrums, but this analysis neglects the fact that a large number of these whales are in fact miners themselves. In other words, the actions of this industry acting in self-preservation are counted alongside the opportunistic actions of other large accounts and together create a narrative that might shake confidence in Bitcoin. However, this is where the exchange reserves come in.
Although miner reserves are at a 14-year low due to troubled times for the industry, exchange reserves represent totally different selling pressures. In fact, the low reserves on exchanges are a sure signal that selling pressure on Bitcoin has actually declined. After all, why would the exchanges be out of Bitcoin if everyone was selling them? Who would be buying these assets? Instead, the low reserves on exchange suggest a period of heightened accumulation from the space, although it’s presently unclear who is buying this stock. Naturally, the ETFs themselves are a possible candidate for some of this action, but a great deal is also found in individual traders.
Small-time traders have already been identified as a defining moment of this price period, as a series of psychological factors may be the biggest actual obstacles to Bitcoin’s continued rise. After all, a wide range of underlying economic factors have actually been encouraging as of late. And yet, the eclectic reasons for mass numbers of people to either buy or sell Bitcoin can include several frustrating options. For example, Bitcoin has spent nearly 2 weeks under the $70k price point, and as a result, there are substantial short positions betting that this trend will continue. From one perspective, everyone will profit if Bitcoin cracks this threshold, but an astounding $1.67 billion from these short positions will evaporate overnight if it actually happens. The collective weight of these bets against Bitcoin has a real and tangible impact on the ecosystem, and Bitcoin’s supporters will need a counterweight to overcome it.
Unfortunately, if the abstracted bets against Bitcoin are eager for further price downturns, bets in Bitcoin’s favor have been struggling. New data from the Chicago Mercantile Exchange suggests that the new ETFs have almost entirely been powering resurgent interest in arbitrage and basis trading for Bitcoin futures. Specifically, the CME’s Bitcoin futures market has grown 80% since the ETF approval, according to data published on June 20th, and the ETFs themselves are a valuable instrument in conducting these sorts of trades. However, the ETFs have been hemorrhaging this week, showing five consecutive days of net outflows to the tune of around $900 million for the entire industry. Losses like this are far from encouraging for a Bitcoin purchaser, and the additional shock that the German government sold off $325 million of seized Bitcoin with little to no fanfare certainly hasn’t helped boost confidence.
Still, despite all these unfortunate omens, there are plenty of positive signs in the market too. For example, Bitcoin has finally reclaimed dominance over its own blockchain, with more than 90% of all on-chain transactions going to regular BTC transactions for the first time in months. Previously, protocols like Ordinals and Runes caused a significant amount of blockchain congestion, but Bitcoin transfers are dwarfing all of these protocols. Additionally, analysts have identified a series of factors that suggest Bitcoin may be nearing a price bottom, especially as the low exchange reserves strongly suggest low selling pressure. These factors may seem inconsequential at first glance, but Bitcoin’s rebound is by no means unexpected.
All in all, it’s difficult to predict exactly where the price will go in the next few days or weeks. The main things that can be extrapolated from the low reserves are that Bitcoin miners have contributed to the selling pressure on the currency, but that this selling pressure is finally letting up. Even with the German government unexpectedly throwing a huge weight of bitcoin into the market, the mood nevertheless suggests a quiet accumulation from traders. Bitcoin will endure in any event, and it’s important to remember that we’ve broken a record of our own. The price has never stayed this close to an all-time high for this long after a massive spike before, and it may well be spiking again in the future. As far as Bitcoin is concerned, we’re in it for the long haul.
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