Chinese miners could become a driver for the growth of the BTC rate

The reason for the increase in the price of bitcoin against the backdrop of increasing demand could be a reduction in supply. Chinese miners fail to quickly sell their cryptocurrency and get much-needed cash amid government crackdown on local exchanges

“The lack of supply fueled this price rally very well. There were no major sell-offs typical of past miner activity,” said Singapore-based trading firm QCP Capital.

Basically, miners work with cash and sell BTC on the market almost every day to finance their expenses. Basically, this is the cost of electricity, which must be paid in local currency (for those working in China, this is the yuan). This arrangement makes the miners permanent sellers and their actions affect the market price.

Controlling more than 70% of the bitcoin hashrate, Chinese miners are having trouble selling their cryptocurrency for cash as many of their bank accounts and cards have been frozen as part of the Chinese government’s nationwide crackdown on telecom fraud and money laundering through cryptocurrency transactions.

“Currently, 74% of miners have found it difficult to liquidate their assets in order to cover their electricity costs,” Chinese crypto observer Wu Blockchain wrote on his blog.

Former F2Pool mining pool top manager Thomas Heller confirmed the predicament of Chinese miners, saying that it is currently a big problem for them to convert bitcoin and USDT into cash.

The mining industry has been struggling ever since the Chinese authorities began freezing bank accounts in June, and things have gotten worse over the past couple of months.

“In early September, mining pools were selling large amounts of bitcoin on exchanges, but this channel was blocked. For example, the heads of large exchanges like Star Xu and other OTC brokers were arrested,” QCP Capital notes.

According to QCP Capital, the sale of miners reduced the price of bitcoin from $12,000 to $10,000. However, the stream of supply dried up after the accounts of the OKEx cryptocurrency exchange were frozen in October. This development, coupled with increased institutional participation or large spot market purchases, led to a reduction in supply and a price rally.

A sharp rise in prices is often accompanied by a large jump in the funding rate. This mechanism is used by exchanges offering perpetual contracts (futures that do not expire) to balance the market and push the price of perpetual contracts towards the spot price.

A very high funding rate is widely considered a sign of an overly long bull run and often opens the way for a price pullback. It is now consistently below 0.010%, which means that the cost of holding long positions is inexpensive. Therefore, for the time being, we can not expect a significant correction, which in the short term will allow the growth to continue and reach new price highs.