Miners suffered a lot during the last months of the bear market, especially between November and December. As the BTC market backdrop moves towards a bullish bias, how are miners faring? And what behaviors do they adopt? On-chain analysis of the situation.
Bitcoin retreats from $30,000
For almost a month, the price of Bitcoin (BTC) has been struggling to break above the $30,000 pivot. Last week, the market conducted an attempt to break up this resistance, which remains unsuccessful for the moment.
After demonstrating that the transition phase between the end of the bear market and the start of the next bull market is not quite over, it seems that BTC price needs more time to prepare for a clean break of $30,000.
While waiting to see how the market reacts, today we will look at the cohort of miners. This group of participants, endowed with a very distinct psychology, suffered a lot during the last months of the bear market, between November and December.
As the BTC market backdrop improves and moves towards a bullish bias: How are the miners doing? What behaviors are they adopting at the start of 2023?
Figure 1: Daily price of BTC
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Measuring the profitability of the mining sector
To answer these questions, we will first try to estimate the average production cost of 1 BTC in order to assess the current profitability of the Bitcoin mining sector.
THE difficulty regression model (MRD) makes it possible to estimate this production cost by considering the difficulty as the representation of the “entry price” incumbent on minors to participate in the competition.
A log-log regression between market capitalization (market cap) and difficulty (entry price) establishes a relationship between the market value of mined BTC and competition within the mining sector.
According to Glassnode, the price derived from this model reflects an average cost of production for the entire mining industrywithout it being necessary to carry out an in-depth study of all the parameters involved.
This “all-in production cost” of 1 BTC is now estimated at nearly $22,300., which indicates at first sight that the mining activity seems profitable. Let’s push the idea even further to see more clearly.
Figure 2: Difficulty Regression Model
Multiplying the output of the difficulty regression model by the circulating supply of BTC yields an approximation of the total cost of production for all BTC in existence.
As a result, it is possible to calculate the total estimated expenses for the entire mining industry. The following graph represents:
In blue, the total cost of production, which is an estimate of the value spent to produce the BTC mined each day. He is currentlyabout $22,000 a day;
In orange, the total income of miners, which is a measure of the spot value of each BTC at the time it was mined. Today it stands at nearly $30,600 a day.
Thus, it appears that the miners’ income is well and truly greater than their expenseswhich places this group of participants in a context of positive profitability.
Please note: this model is based on the assumption that both operational expenses (OPEX) and capital expenses (CAPEX) are fully included and reflected by the difficulty adjustment. Other estimates of the cost of producing miners exist and offer different results depending on the assumptions made.
Figure 3: Total Production Cost and Daily Miner Income
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What position do minors take?
By observing the outflows from miners’ reserves to exchanges, we can get a proxy for the profit/loss-taking behavior of these entities.
In addition, by taking the markers of notable hashrate drops (in blue), we can highlight periods of substantial spending by miners, correlated with a bear market context.
Thus, we can determine that, during capitulations, miners tend to send large volumes (500 BTC – 600 BTC per day) to exchangesprobably to access the capital necessary for their financial survival.
Moreover, it appears that, since 2021, incoming flows to exchanges have tended to fallwhich indicates an increased form of HODLing on the part of these entities.
Figure 4: Flow of BTC from Miners to Exchanges
This observation is corroborated by the study of net flows (inflows + outflows) of miners to/from exchanges.
We notice here that the capitulations of November 2018 and November 2022 saw net deposits on the exchanges between 1400 and 1500 BTC per day.
We can also note that the dynamics of net deposits (in this context: loss taking/liquidations of BTC) tend to increase during the final stages of bear markets, before resolving following the passage of the cyclical trough.
Currently, the 7-day net flows show values close to 0, meaning that miners take a rather neutral stance.
Although the operations of the average miner are profitable again, we cannot witness large inflows on the exchanges.
And for good reason : miners looking to take profits know it’s still too early. They will patiently wait for the bull run to set in and prices to rise before proceeding to sell off their precious BTC.
Figure 5: Miners’ Net BTC Flows to/from Exchanges
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Summary of this on-chain analysis of BTC
This week’s data suggests that the situation of minors quickly recovered in early 2023now favoring savings over spending.
In effect, with a production cost per BTC of around $22,300, the mining business is profitable againfollowing a period of capitulation between November and December 2022.
Despite this context of profitability and the resulting competition, miner streams signal relatively neutral behaviorwith decreasing outflows.
Preferring to wait before making a massive profit take, the miners seem to be adopting a bullish regime behavior. The latter is characterized by reduced spending as long as the price of BTC is not high enough to encourage them to sell.
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Sources – Figures 1 to 5: Glassnode
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On-chain analyst, fervent fighter of informational asymmetry.
My goal is to inform everyone about the state of Bitcoin (as an asset and a distributed network) through the prism of on-chain analysis.
Teacher. Chain
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