Coin Metrics: Can Miners Influence the Price of BTC?
Title: "Coin Metrics: Can Miners Influence BTC Prices?"
Original source: Crypto Valley Live
Miners are often blamed for the fall in the price of bitcoin. These accusations are often unfounded -- and worse, they are sometimes based on the wrong metrics, confusing pool payments with miner payouts, and ultimately misleading users.
Accurate assessments of the extent and impact of miners' selling are crucial to understanding the market. In Following Flows: A Look at Miners' On-Chain Payments, Coin Metrics announced A new method for estimating Miners' activity. This approach allows for poolsThe walletThe structure is structured in a way that allows the user to distinguish between pool and miner activities.
In this article, we will look at miners andexchangeTo refine our estimates of miner activity, allowing us to determine when and where miners sell coins. All of the metrics used in this article will be available in our upcoming 4.9 release of Network Data Pro.
Traditionally, we have found that miners tend to choose Huobi and Binance over other exchanges. We also find that traffic from mining addresses accounts for a small percentage of total exchange inflows, about 5.5% at the time of this writing, and is not a major source of market volatility.
Mining market metrics
Coin Metrics' miner-exchange traffic is based on our existing estimates of miner and exchange activity. Existing indicators of inflow, outflow and supply provide useful background on market sentiment, exchange health and network decentralization. Due to different problem structures, exchange traffic and miner traffic are based on two different clustering techniques, each of which has its own disadvantages.
Exchange traffic is estimated using common input as well as wallet owners, which assumes that addresses entered as the same transaction share a single owner. This technique is precise, but requires each exchange to have at least one seed address, limiting coverage to a predetermined exchange universe.
Trading on a centralized exchange typically requires users to deposit coins on an exchange, where they are held in custody by the exchange operator. Mining generally works in a similar way: miners share resources with each other to improve their chances of finding blocks, coordinating with centralised operators through pools. Pool operators typically receive newly minted coins to addresses they control before distributing them to miners through payment transactions.
The miners of Coin Metrics illustrate this architecture by referring to clusters based on the hop distance between addresses and base transactions. The address that has received the base reward, or the zero hop address, is assumed to belong to the pool. Hop 1 addresses that have received payment from Hop 0 addresses are marked as belonging to miners. This approach is less precise than the co-input-ownership approach, but broadly mirrors the structure of the pool wallet and provides better coverage.
Neither cluster can detect the use of fresh addresses, and the results of each cluster should be regarded as rough estimates. Because the exchange markings are more accurate, we tend to resolve conflicts in this way: addresses marked as belonging to both miners and exchanges are treated as exchanges exclusively.
By combining these two techniques, we can estimate where miners deposit their coins, which roughly corresponds to where they sell them.
Miners' flows to the exchanges are broadly similar to those to the overall exchanges, but there are a few major differences. Binance and Huobi are the best performing exchanges by far, with Huobi's share of the total inflow significantly higher than its share.
The results seem intuitive, since Huobi and Binance are the only exchanges in the coverage that also operate mining pools. The two exchanges also have close ties to miners and have a strong presence in Asia, where most of them are based.
Binance and Huobi are also leading the outflows from the exchange to miners. That suggests miners are also buying on these exchanges.
As with inflows, Huobi's share of outflows is significantly higher than that of exchanges that do not operate the pools. Binance is roughly equal in both distributions.
In the future, miner-exchange flows can be used as a proxy for the geographical distribution of mining rights. This will depend on the assumption that miners are using exchanges in their area, and more complete exchange coverage is needed to paint a representative picture.
Measure miner-exchange flow
Our method can be used to assess the composition of miner-exchange flows and their overall size. Overall, mining pools are net depositors to the exchanges, although the amount of money transferred each day is small.
As with their respective overall flows, the 1-hop miner's exchange is an order of magnitude larger than the 0-hop one. Although these flows takeBTCValuations have declined since their 2016 peak, but they have gradually increased since 2018. In contrast, dollar-denominated traffic has surged past previous highs, reflecting the rise in bitcoin's price.
One factor may be that most miner sales take place over the counter, meaning funds are not immediately sent to exchanges. The accumulation of early miners may also be a contributing factor, which can be addressed by filtering out recent outflows of funds from addresses that did not receive funds from the 0-hop address. Finally, payments from the exchange's affiliated pools may be confused with exchange withdrawals.
Despite this result, the total traffic seems to be heading in the right direction; They are also granular enough to be useful when combined with the traffic on a particular exchange. However, since the difference between these inflows and outflows has always been unexpected, the net flows calculated based on these time series may be of limited value.
Content of Traffic
Miner-exchange flows are best understood in the context of their constituent flows. To understand the size of miner-exchange flows, it is helpful to compare them with the total flow of miners and the total flow of exchanges.
Funds transferred to exchanges typically account for a high single-digit percentage of miner flows, although the percentage has varied historically. Deposits to exchanges also account for a significant percentage of mine pool flows.
A higher proportion of mine inflows were drawn from exchanges, probably because of exchange-affiliated pools and off-market sales. Money taken from zero-jump addresses generally accounts for a much smaller percentage of total traffic, although it has recently started to increase.
In theory, miners' deposits with exchanges should be related to sales, but in the past few years they have typically accounted for a single-digit percentage of exchange inflows. At the time of writing, miners' deposits accounted for about 5.5 per cent of inflows to the exchange. Although most miner selling is off-exchange, this number is likely to be upward skewed due to the wide net cast by the 1 analysis method, meaning that the true in-exchange selling pressure provided by miners is likely to be lower.
Although miner-exchange traffic itself is unstable, it fluctuates so little that it is not significant in the context of overall exchange traffic, and the traffic between the 0-hop address and the exchange address is negligible. Therefore, we see little reason to attribute the downward swings in bitcoin prices to miner selling.
Miners' withdrawals account for a large share of outflows from the exchange, which generally remained above 10 per cent last year. The difference between this figure and the proportion of inflows from miners' deposits may be related to the role of exchange associates, which may maintain close links with their parent companies and may make payments from overlapping addresses.
The lack of a relationship between prices and miners' activity is evidenced by the low correlation between prices and deposits. This lack of correlation also existed when training was conducted only on days when prices fell.
By comparing the changes of price and miners' savings, the lack of relationship between price and miners' expenditure can also be intuitively confirmed. These values rarely move in sync, indicating a low correlation. Although the distribution of daily percentage changes is skewed compared to the distribution of basic variables, they are suitable for informal visual analysis.
conclusion
The impact of Bitcoin miners on the broader market is still not fully studied. But by developing more sophisticated methods to assess the scale of miners' activities, we can begin to better understand the role of miners. Given the small size of miners' deposits compared to total transaction flows, and the lack of correlation between miners' transaction flows and prices, we find little reason to believe that miners are the cause of the fall in bitcoin's price.
These indicators have a lot of room for improvement, particularly in terms of increasing exchange coverage and filtering out addresses that have not recently been involved in mining activity. Nonetheless, the exchange level traffic is in line with the conventional wisdom that Binance and Huobi are the preferred exchanges for miners, and these indicators are informally checked for validity.
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