- With less than 10 hours until the Bitcoin halving, price of BTC dropped by nearly 20%.
- Selling pressure seems to come from whales, as open interest surged on BitMEX before the big fall.
- Whales are seemingly taking advantage of retail investors around the halving narrative.
In less than 10 hours, the highly anticipated Bitcoin halving will be activated. But, whales seem to be taking the opportunity to dump on the market.
Since Friday, bitcoin price dropped by more than 14% from $10,020 to $8,550. At its lowest point on May 10, it reached $8,100, marking a 20% decline ahead of the halving.
Bitcoin price sees a steep sell-off ahead of halving | Source: TradingView
What is the Bitcoin Halving And What Impact Will It Have on BTC?
The Bitcoin blockchain network is primarily divided into three groups: developers, users, and miners.
Miners verify blocks that contain payment data using electricity and mining equipment such as high-power computing chips. When a miner verifies a block and the block then enters the Bitcoin blockchain, the miner is compensated with BTC.
When the block reward halving occurs, which happens every four years, it decreases the compensation miners receive by half.
Prior to the 2020 halving, Bitcoin miners earned around 1,800 BTC every day. Post-halving, miners are expected to generate around 900 BTC per day.
Bitcoin miners will generate 900 BTC a day after halving | Source: Willy Woo
Bitcoin is a deflationary currency because of its fixed supply of 21 million BTC. As such, any occurrence that affects the supply of BTC will inevitably have a significant impact on its long-term price trend.
In theory, the halving is likely to have a positive effect on the price of Bitcoin over the next four years. Less BTC will be mined by miners, which means less BTC will be sold to the market.
But, as seen in the 2016 halving, the Bitcoin price tends to drop right before and after a halving occurs.
A post-halving drop happens as whales move to take advantage of rising retail demand.
In April, data shows that spot volume of Bitcoin rose noticeably on platforms like Coinbase and Binance. Hence, heading into the halving, the demand for Bitcoin from retail investors is higher than in previous months.
For whales, this means liquidity. Whales that hold millions of dollars worth of Bitcoin cannot sell BTC when they do not see much buying demand in the market.
Whales typically wait for BTC price to rise to a local high point, and then initiate a sell-off. It is for this reason that the Bitcoin price sees a large shift in trend and a predictable cycle.
BitMEX open interest increased significantly before 20% bitcoin price drop | Source: Hsaka
Why Are Whales Dumping in Tandem?
In the past three months, the Bitcoin price increased from $3,600 to $10,065, by nearly three-fold.
Most of the buying demand came from spot exchanges that saw record high volume in late April.
Whales that accumulated in the $3,000 to $4,000 range have the incentive to sell at $10,000 where there is high liquidity and retail demand.
The high price also coincided with a positive narrative in halving, similar to October 2019 when Chinese President Xi Jinping encouraged the development of blockchain technology.
At the time, the Bitcoin price abruptly rose from $7,700 to $10,500 within a 48-hour span. Given that Bitcoin trading remains prohibited in China, it is difficult to state that a fear of missing out (FOMO) hit the Chinese market and retail investors bought in.