Author: Matt Crosby, Head of Research and Analysis at Bitcoin Magazine Pro; Compiler: Shaw Golden Finance

We're going to get straight to the point this issue, as there's quite a bit of content, and much of it is encouraging, which is a far cry from the past few months. The question I want to explore iswhether institutional investors, exchange-traded fund (ETF) holders, and miners behaved as expected after the price of Bitcoin dropped more than 50% from its highs.

ETF data

If you look at cumulative ETF fund flows in U.S. dollars, the number dropped slightly, from about $64 billion to about $55 billion to $56 billion. At first glance, this may seem significant,but it’s important to note that much of this drop is simply a result of falling Bitcoin prices, rather than actual outflows. A more objective way to measure it is in Bitcoins.

Figure 1: ETF cumulative fund inflow (priced in Bitcoin).

The cumulative net inflow of Bitcoin peaked at approximately 768,000 BTC and recently fell to a low of approximately 669,000 BTC, a decrease of slightly less than 13%. If you think about it, Bitcoin is down 50%, whilethe proportion of Bitcoin held in ETFs has actually flowed out is just over 10%. Looking at short-term holders, if the price drops slightly, tens of thousands or even hundreds of thousands of Bitcoins will change hands. In comparison, the difference is very obvious.

I would like to err on the side of caution and avoid exaggeration; not all ETF buyers are institutional investors, and some estimates suggest that they only account for about 30%. But the behavior of the broader group of holders also says something. These people are not here for short-term trading. Many of them appear to have a genuine long-term investment philosophy in Bitcoin, or at least a clear understanding of the risks they are taking.

Judging from the recent ETF daily capital flow data, as the price of Bitcoin begins to rise back to the $70,000 range, we have seen strong capital inflows for many consecutive days. Bargain buying is back, and unabashedly so.

Figure 2: ETF daily fund flows (using 28-day average).

Treasury Company

There has been a lot of discussion over the past few weeks about Bitcoin treasury companies; some believe that as these companies’ share prices plummet, they will start selling off their Bitcoin reserves in order to survive. But that didn't really happen. Strategy continues to increase its holdings. Marathon Digital has also been adding to its holdings. Overall, weare not seeing large-scale outflows or any large wave of panic selling. These companies hold large amounts of Bitcoin, and many had believed that these Bitcoin reserves would become a source of selling pressure should market conditions deteriorate, but they have largely stayed on hold.

Figure 3: Despite falling stock prices, most public companies either maintained or increased their Bitcoin reserves.

Signals sent by miners

In addition to ETFs and institutional investors, miners are one of the undervalued signals in this market. Due to their high operating costs, they are highly sensitive to Bitcoin prices and tend to sell continuously to cover these costs. So when they start holding Bitcoin, or the hashrate starts to pick up, it’s worth paying attention to.

Figure 4: The latest signal from the Bitcoin hashrate band indicator.

The Bitcoin Hash Ribbons Indicator, which tracks the relationship between Bitcoin’s 30-day and 60-day moving averages, briefly signaled a slight capitulation when prices fell. This is normal; some miners will temporarily reduce mining operations because they are unprofitable. But what wehave seen recently is a rapid recovery in computing power, with the short-term moving average moving back above the long-term moving average. Judging from historical data, this crossover has been one of the more reliable long-term buy signals for Bitcoin.

Production costs

There is another factor that I think is particularly compelling right now: Bitcoin’s electricity production cost, that is, the cost of electricity required to mine one Bitcoin (excluding hardware costs), has historically been a basic valuation bottom line. Throughout Bitcoin's history,whenever its price hits or falls below this level, it represents an excellent buying opportunity. We saw this during the 2022 FTX crash. We also saw this during the volatile consolidation period in 2024, when Bitcoin prices were quickly absorbed by buyers every time the price briefly fell below this level.

Figure 5: Bitcoin price falls below its corresponding cost of electricity production.

Bitcoin recently fell below the cost of electricity production again and almost immediately rebounded to around $70,000. But that doesn’t mean a bottom has been reached; computing power could fall further, and production costs could continue to fall as they did in the 2022 bear market cycle. But buying an asset for less than the cost of production is arguably the closest thing to a basic definition of value in this market.

Summary

Many factors are beginning to converge. The wave of retail selling we mentioned earlier has already occurred. Judging from the data of ETFs and treasury companies, the behavior ofinstitutional investors remains surprisingly calm. Miners' confidence is returning. Bitcoin’s trading price also briefly fell below its production cost.

The above does not guarantee that there will be a decline in the future. There is still the possibility of further declines for Bitcoin, and this cycle has already seen us see a lot of that. But taken together, these signals suggest that the risk-reward ratio of buying at current prices will be more attractive for quite some time. Institutional investors apparently agree, because they have been buying while much of the market has been moving in the opposite direction.