Bitcoin price dump may have been triggered by largest BTC mining pool
The Bitcoin (BTC) network uses the Proof of Work consensus algorithm. This requires a lot of computing power from the so-called miners, who verify the Bitcoin blocks with special mining hardware. The picture shows a Bitcoin coin on a circuit board.
The current volatility in the Bitcoin price could be due to a tug-of-war between F2Pool sales and Grayscale purchases.
The price of Bitcoin (BTC) fell to a low of $28,950 on 22 January. Among others, miners are blamed for this, as they probably sold large amounts of their holdings. Fortunately, however, large buyers ensured that the Bitcoin Loophole slump was minimal and the Bitcoin price corrected upwards again just as quickly.
Supporting these statements is the fact that, according to data from the on-chain resource CryptoQuant, there have been huge outflows from mining pools in recent days. This in turn led to the bitcoin price falling by 20% within a week.
F2Pool recorded daily outflows of 10,000 BTC
From 15 January, in particular, the amount of bitcoin outflows from F2Pool, currently the largest mining pool with about 15% of the total hash rate, started to increase. By 17 January, daily sales reached an amount of 10,000 BTC (US$313 million) and continued for three consecutive days before returning to normal levels.
F2Pool appears to be responsible for the vast majority of BTC outflows in the market. This does not necessarily mean that miners sold bitcoin on the open market, but simply that they moved the mined BTC out of their original wallet.
Regardless of the pool’s motives, the figures form a welcome possible explanation for what may have caused the sudden Bitcoin price collapse this week. Previously, theories such as the Stablecoin Tether (USDT) controversy, as well as a recovering dollar, were touted as the cause of the downward volatility.
Meanwhile, bitcoin exchange balances have remained steady throughout January. In contrast, the general trend since summer 2019 has been for more and more BTC to be taken off exchanges.
Chart of the course of bitcoin reserves on the exchanges
Huge Grayscale buying caught up with the bitcoin price
Should potential F2Pool sales have formed large glut of new BTC offerings on the market, it is likely that one buyer in particular scooped them up rather quickly.
Asset management giant Grayscale added eye-popping amounts to its assets under management this week, which may have kept the bitcoin price from sliding into even lower regions.
The company’s recently released Q4 2020 report, in which Grayscale writes that institutions supplied 93% of its inflows, reinforces the idea that it is the main buyer of any free BTC supply.