On-chain indicators indicate: Bitcoin miners’ influence on prices is waning

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A new report from on-chain analytics provider CoinMetrics shows that the huge influence of miners on the Bitcoin network is gradually waning.

This research analyzes the addresses and expenditures of miners and mining pools to determine whether their impact on the entire network changes over time. Since miners receive newly mined bitcoins instead of purchases, they are naturally net sellers of bitcoins.

Measuring the net traffic of two types of addresses related to block rewards shows that the influence of miners on Bitcoin’s liquidity has gradually diminished:

“On-chain indicators such as miner holdings and net transfers indicate that the influence of miners on the Bitcoin network is slowly waning.”

Operating costs such as electricity and rent are all priced in fiat currency, which increases the pressure to sell bitcoin into fiat currency. The study found that over time, the proportion of supply held by miners has generally declined.

The number of bitcoins held by the addresses that received block rewards and those that receive instant transactions has declined.

From the perspective of total supply, it is more obvious that the supply of Bitcoin held by miners and mining pools is gradually decreasing. Having said that, this report confirms that miners and mining pools will still control “a significant portion” of the total supply.

Miners, especially those who were active in the early stages of the Bitcoin network, control a considerable amount of Bitcoin, but throughout the history of the Bitcoin network, the number of Bitcoin held by miners has generally declined. -CoinMetrics.io (@coinmetrics), November 3, 2020

According to the chart, the proportion of Bitcoin held by mining pools and miner addresses in the total supply has dropped from about 25% in 2015 to about 18% today. Lower holdings mean that miners can sell fewer bitcoins to the market, which reduces their impact on bitcoin prices.

In the early days of the Bitcoin network, net traffic was unstable because sales volume changed with price changes. However, over time, the volatility gradually decreased, which may be due to the Bitcoin halving and reduced block rewards.

“These flows have also experienced a gradual decrease in volatility, indicating that the influence of miners on liquidity is gradually weakening.”

Several other on-chain indicators are also declining recently, such as computing power. Due to seasonal changes in China, computing power has declined. China is where a lot of mining is conducted. According to CoinMetrics’ data, the recent difficulty adjustment is also considered the biggest drop during the ASIC era.