Singapore-based trading firm QCP Capital notes that Chinese miners are facing major liquidity issues and unable to sell their holdings due to government crackdown on exchanges. This gap in demand and supply has triggered the latest BTC price rally.
While there have been multiple theories backing the Bitcoin (BTC) price surge with institutional participation, there’s another reason providing fuel to this rally. The recent crackdown by China on the local crypto exchanges could have played a significant role in Bitcoin jump.
It’s the basic supply and demand economics playing a key role behind the latest BTC price movement. While the demand has shot on one end, the supply is drying up on the other hand. Singapore-based trading firm QCP Capital said that with the latest crackdown on exchanges, Chinese miners are finding it increasingly difficult to liquidate their holdings.
“The lack of supply has fed extremely well to the trendiness of this rally, without any of the large sell-downs typical of miner activity in the past,” wrote QCP Capital. The trading firm notes that despite all talks of macro factors and inflation hedge, the rally is because of other reasons. Bitcoin miners usually offload their holdings on the market to fund their expenses.
They do this activity almost on a daily basis and receive payments in local currencies. Thus, by being constant sellers, the miner action does influence the BTC price movement. Now, the Chinese miners alone control Bitcoin’s 70% of mining power or the hash rate. With the Chinese government’s crackdown, miners have their bank account and cash frozen. Thus, they are simply not able to liquidate the BTC for cash. This supply crunch from miners is driving BTC prices even higher.
74% of Bitcoin Miners Facing Liquidity Issues due to Crackdown in China
Citing the study by QCP Capital, Chinese crypto reporter Wu Blockchain reported that nearly 74% of Bitcoin miners are facing liquidity issues. The crackdown by the Chinese government started earlier this year in June 2020. Since then, the situation has been worsening.
As the Chinese government is cracking down on the exchange of crypto and legal currency, Chinese miners are facing a major problem in paying electricity bills. 74% of the miners surveyed told Wu that the payment of electricity bills has been greatly affected. pic.twitter.com/Sqi8DkP5zb
— Wu Blockchain（Chinese Crypto Reporter） (@WuBlockchain) November 16, 2020
The report from QCP Capital notes that during the start of September 2020, the BTC price corrected from $12,000 to $10,000. The trading firm attributes this correction to miner selling. But latest as we know, crypto exchange OKEx suspended operations indefinitely in October following the crackdown. QCP Capital states:
“Mining pools were selling large chunks of bitcoin in early September through exchanges, but this was hastily halted as their last remaining fiat off-ramp avenues were impacted with the arrest of large exchange heads like Star Xu and other [over-the-counter] brokers”.
This supply crunch coupled with institutional demand has triggered a major surge in the BTC price. Interestingly, the latest data from Glassnode confirms that miner revenue has also reached pre-COVID levels.
#Bitcoin miner revenue is back at pre-halving levels.
Chart: https://t.co/Ao9DodRwqi pic.twitter.com/PwUHPaKz8L
— glassnode (@glassnode) November 18, 2020
At press time, BTC has corrected below $18,000 levels and currently trading at $17,821 with a market cap of $330 billion.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
