Bitcoin‘s drop could have been technical; however, one non-technical cause is that investors are mindful of the currency’s scarcity. China prohibited state-owned firms from engaging in large-scale Bitcoin mining or any other mining activities some time ago. Although this may have caused a brief drop in Bitcoin‘s hash rate and resulted in liquidations, miners’ hoarding may escalate.
A new paradigm is that Bitcoin miners seek to stockpile more Bitcoin rather than sell their holdings as China, the US, and environmental regulations put the brakes on the mining sector. Investors may react by going on a buying frenzy for Bitcoin futures and exchange-traded funds. Bitcoin purists who are in it for the long term, as well as many other investors, may be prompted to stockpile Bitcoin as mining activity declines.
Why are People Coin Hoarding?
When an asset is amassed because of its unique characteristics, liquidity, safety, and a guaranteed return of principal are all factors to consider. However, this situation is different in crypto as people begin coin hoarding. To establish a mining and trading business for digital assets, funding must be raised. Miners are coming up with novel methods to use their Bitcoin holdings to meet operational costs in order to avoid a forced sale.
One method is to lend out a part of the Bitcoin holdings and generate interest, which can then be used to cover operational expenses. Hut 8 Mining, for example, loaned 2,000 Bitcoins at 4% interest. By generating a return on its leased crypto assets, the business effectively created a Bitcoin treasury, creating a liquidity effect in Bitcoin futures.
What could Coin Hoarding Mean for the Economy?
Bitcoin‘s scarcity premium — a measure of investors’ desire to retain the commodity — is rising. Despite the increasing volatility, Bitcoin’s hoarding puts it in direct rivalry with gold and treasuries. Investors who wish to buy Bitcoin for basic reasons want an asset with a higher yield than inflation, whereas diversifying investors want stability, and speculators want large profits. Miners’ increased hoarding activities may benefit all three investment groups since decreasing Bitcoin‘s float ahead of its natural limit will convert digital assets to collateral.
The coin hoarding of Bitcoin and other crypto assets is expected to increase, cementing their image as a safe haven. The growth of the crypto-lending industry is a significant force to be reckoned with since Ether and stablecoin loans are preferred by investors ready to take on greater risk in the hopes that Bitcoin would attain a treasury status. The interest rate on crypto loans will become an essential statistic for investors looking for yields on digital assets.