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Rising energy costs are forcing Bitcoin miners to sell to service loans and the SEC rejected a Bitcoin spot ETF.
Key points
- Over the past 24 hours, Bitcoin fell to $18,729 according to CoinMarketCap.
- While there are several factors contributing to the downward pressure on Bitcoin, one driver was that the U.S. Securities and Exchange Commission rejected an application by Grayscale to launch a spot exchange traded fund (ETF) two days ago.
- Another key pressure on BTC’s price is the fact that Bitcoin miners are dumping the coin on crypto exchanges which is adding to the supply, lowering the price. The proceeds from those sales are needed to cover soaring energy and borrowing costs for equipment.
The crypto crash has hit Bitcoin (BTC) particularly hard, causing it to experience its worst performance in the first half of any year since it was created in 2009 — enduring a loss of 59% so far in 2022. Over the past 24-hour stretch, the first and most valuable crypto tripped as low as $18,729 according to CoinMarketCap, falling well below the psychological price point of $20,000. Bitcoin has only done that one other time so far this year. While there are certainly several macroeconomic reasons for Bitcoin’s falling price, there are two key downard drivers that can’t be ignored.
SEC recent rejection of another Bitcoin spot ETF application
Two days ago the SEC formally announced that it was not going to approve an application filed by crypto investing firm Grayscale for a spot exchange traded fund (ETF) in the U.S. Currently, several futures-based ETFs for Bitcoin are available to U.S. investors — but not a spot ETF.
A Bitcoin spot ETF would give investors direct access to purchase the crypto on the “spot” market at a real-time price. The futures-based ETF enables investing indirectly in Bitcoin using contracts to buy or sell BTC at a preset future date. Both a futures-based ETF and a spot ETF provide the benefits of investment diversity from a mutual fund with the trading flexibility of a stock.
Despite the downturn, a recent survey found that 72% of financial advisors are chomping at the bit for a Bitcoin spot ETF and would likely invest client assets in that type of financial instrument if available.
Bitcoin miners are selling BTC assets to cover rising expenses
The other key downward driver affecting BTC’s price is that Bitcoin miners continue to actively sell tens of millions of dollars worth of the asset on cryptocurrency exchanges. By flooding the crypto market with new BTC units, they’re increasing the supply and thereby decreasing the price per coin.
The reason for this selling pressure is that miners globally need the proceeds of those Bitcoin sales to cover spiking energy prices to run their power-hungry computing and cooling gear. The funds from BTC asset sales are also needed by U.S.-based Bitcoin miners to pay higher interest loans and debt service resulting from the Fed’s aggressive plans to continue raising short-term interest rates several times this year.
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No one knows for sure where the price of Bitcoin will be within the next six months or the next year, but one thing that’s absolutely certain is that we will see volatile price action along the way.
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