Native Sell Pressure in Bitcoin, Ethereum, & Solana
Understanding native sell pressure of the world’s most adopted digital assets.
Sell pressure is the dark enemy of all assets for all of us holding a bag.
Though venture funds and dishonest KOLs typically lead the charge in this regard, supply shock inventory, miners, and, increasingly, institutional investors have now become the masters of FUD, commanding billions of dollars of net flows.
However, native sell pressure is a function of each network and protocol’s tokenomics — encoded in every burn, mint, and APY distribution function to bootstrap stakeholder incentives while avoiding economic bloat that could send the system’s native token price skydiving.
In this brief, we analyze the native sell-pressure built into the Bitcoin, Ethereum, and Solana economies. Alright, enough of this filler intro — let’s get into it.
Bitcoin
Bitcoin has a fixed supply cap of 21 million tokens and leverages a pre-determined emission schedule. For each new block generated (on average every 10 minutes), the miner earns a newly minted block reward, which is additive to the token supply. Every 210,000 blocks (approximately four years) this fixed block reward reduces by half in an event known as a “Halving”. At its genesis in 2009, Bitcoin’s block reward was ₿50.
The zero block rewards and fixed supply cap will not be reached until 2140, though the inflation rate will continue to decrease with each halving as the block reward is cut in half. Until this supply cap is reached, however, bitcoin remains an inflationary asset. At the current block reward, ₿164K ($10.3B) will be minted each year.
Currently, the majority of Bitcoin’s native sell pressure comes from the following:
- Bitcoin Miner Revenues (from Tx Fees & Block Rewards)
- Market Shock Supply (Creditor Payouts, Government Seizures)
Miner Sell-Pressure
Due to the high operational costs and competitive nature of Bitcoin mining, along with the need for publicly listed mining companies to report quarterly earnings and support stock prices, miners are often compelled to sell their mined BTC to realize profits. This creates consistent sell pressure on Bitcoin. The expense-intensive nature of mining, including the need to cover financing costs for facilities and ongoing operational expenses like electricity, taxes, and staffing, forces miners to sell a portion of their mined BTC regularly. Most importantly, Bitcoin’s total mining capacity (i.e. hash rate) has historically continued to increase even while block rewards decreased, which has reduced the profitability per unit of hash power.
Since the April 2024 Halving, miner revenues (i.e. potential sell pressure) has amounted to an average of $218M per week, though it was as high as $489M pre-Halving in April 2024. However, during that same timer period, network hash rate growth has stalled, indicating that miners’ profitability margins have become highly compressed.
It seems that expanding mining capacity is no longer profitable at current Bitcoin prices and hardware costs. This compression in profitability means that miners may need to sell a larger portion of their mined BTC to cover operational costs, which are primarily incurred in fiat currency.
Market-Shock Supply
In the context of crypto, Market-Shock Supply refers to a sudden and significant influx of a particular cryptocurrency into the market, often due to an unexpected event. This surge in supply can drastically alter market dynamics, typically leading to a sharp drop in the cryptocurrency’s price. Such events can be triggered by:
- Large Sell-offs: When a significant holder (e.g., a whale or an institution) decides to liquidate a large portion of their holdings.
- Unlocking of Tokens: When a large number of previously locked or vested tokens become available for trading, increasing the circulating supply.
- Regulatory Changes or Hacks: Regulatory crackdowns, exchange hacks, or other sudden events that cause panic selling and a rush to liquidate assets.
This rapid increase in supply without a corresponding increase in demand can create a “shock” to the market, destabilizing prices and sometimes leading to broader market volatility.
For Bitcoin, market-shock supply pressures typically stem from the collapse of centralized BTC liquidity venues like exchanges, market makers, and lenders. Unlike other cryptocurrencies, Bitcoin doesn’t have vesting token schedules or smart contracts that can be exploited on its network.
Creditor Payouts (Hopefully Temporary)
For the 2024 BTC Halving cycle, market-shock supply is currently constrained to the $10 billion (168k BTC) in BTC payouts owed to creditors from the Mt. Gox and Genesis bankruptcy estates. The market is concerned that these creditors may choose to liquidate their Bitcoin once they are fully reimbursed, potentially leading to market turmoil, especially if triggered by a recession due to near-term interest rate reductions.
Government Seizures & Sell-Offs
Government seizures of BTC from illicit websites (oftentimes on the Darknet) increase market-shock supply.
For example, in February 2024, German authorities seized 50,000 Bitcoin, valued at around $2.1 billion, from a former operator of the piracy website Movie2k.to. The cryptocurrency was voluntarily handed over by one of the suspects during an investigation into unauthorized commercial exploitation of copyrighted works and money laundering. The seizure was part of an ongoing investigation by the Dresden General Prosecutor’s Office, the Saxony State Criminal Police, and other agencies.
Following the seizure, Saxony State sold off the BTC into the market, causing a 16.89% drop in BTC:USD price that soon recovered to a 8.85 decline on the final day of sales.
The market-shock supply goes beyond the Saxony State of Germany. As of 2024, several governments around the world hold significant amounts of Bitcoin, primarily obtained through seizures related to criminal activities:
- United States: The U.S. government is the largest holder, with approximately 203.129 BTC, valued at around $11.98 billion. These were primarily obtained through seizures related to cases like the Silk Road dark web marketplace.
- China: China holds around 190,000 BTC, valued at approximately $11.02 billion. Most of this Bitcoin was seized from the PlusToken Ponzi scheme, one of the largest cryptocurrency scams in history.
- United Kingdom: The UK holds about 61,000 BTC, worth around $3.53 billion. These were seized from various financial crimes, including significant money laundering operations.
- El Salvador: El Salvador, known for adopting Bitcoin as legal tender, holds about 5,800 BTC, valued at ~$0.40 billion. These holdings are part of a national financial strategy, including a “1 Bitcoin per Day” purchase program.
- Ukraine: Ukraine holds around 46,351 BTC, obtained through both police seizures and donations supporting its war efforts.
BTC ETF Outflows (Theoretically)
2024 introduced a new BTC price correlation: BTC ETF Net Flows. As cryptocurrencies gradually become institutionalized into structured products, global investment macro trends will increasingly dictate asset price in conjunction with the asset’s tokenomcis and network/protocol performance KPIs.
Ethereum
Ethereum began as a proof-of-work (PoW) network that later transitioned to proof-of-stake (PoS) in order to better scale transaction throughput and minimize hardware requirements that caused the network to become inherently centralizing.
Ethereum is biflationary, using three supply dynamic mechanisms to guide the network’s tokenomics:
- Issuance: Ethereum emits gross issuance based on the total value staked. Specifically, total issuance is proportional to the square root of the number of validators.
- Transaction Fee Burning: Ethereum burns a portion of all ETH spent on transaction fees from the circulating supply.
At the time of this writing, there are approximately 1.66M validators and 23.3K ETH gross issuance occurs per week, resulting in an annualized inflationary ETH environment of 0.295%. The APY for staking ETH as a validator (or liquid staker) is 2.8%.
Ethereum’s BASE_REWARD_FACTOR controls network inflation. As L2 roll-up usage rises, Ethereum’s transaction density and burn rates have been steadily decreasing since 2021, leading to higher inflation.
If transaction density continues to drop as users opt for lower L2 transaction fees validator profitability and total ETH staked will inevitably follow unless the BASE_REWARD_FACTOR factor is increased. However, in doing so, inflation will increase as well. It will likely become necessary for Ethereum to refocus on better scaling transaction costs on the L1 or redefine the relationship between rollups and the base layer so as to increase the proportion of ETH staked and/or the amount of ETH burned.
Another factor that influences Ethereum’s supply and demand dynamics, albeit indirectly, is staking. Approximately 29% of ETH’s total supply is staked and continues to grow. Staking serves as a large net supply sink for Ethereum and has largely been popularized and simplified through liquid staking protocols such as Lido and Rocketpool, which allow users to stake without setting up their own validators and earn a proportion of the validator rewards for doing so via an APY.
Solana
Solana has been a PoS network from inception and has a fixed gross inflation schedule that doesn’t vary based on validator count. Currently, Solana's inflation rate is 5.1%, and will continue to taper by 15% annually until it reaches a terminal rate of 1.5% in approximately 2031.
Solana burns 50% of both base and priority fees, compared to Ethereum’s 100% burn of its base fee. However, Solana’s burn rate is much lower, offsetting only 6% of its issuance YTD (1.1M SOL burned vs. 18.2M SOL issued). Most of Solana’s inflation comes from its fixed emission schedule, adding 528K SOL ($84M) weekly — higher than ETH’s $46M but lower than BTC’s $198M.
Solana’s staking ratio has been stable, staying above 60% since September 2021, peaking at 72% in October 2023, and leveling off at 68% by March 2024. This higher staking ratio suggests more staking rewards may be sold compared to ETH.
Conclusion
Token inflation impacts flows differently based on factors like issuance costs (mining vs. staking) and variability (burn rates). PoW chains like Bitcoin face higher sell pressure from miners covering costs, while PoS stakers can retain more of their earnings. PoS inflation rates also depend on staking ratio changes. To fully understand emission-driven flows, both metrics need consideration. For example, while staking acts as a liquidity sink for ETH, it currently does not for SOL.
