On-chain metrics suggest Bitcoin miners’ influence on price is weakening

A new report from on-chain analytics provider CoinMetrics suggests that miners’ outsized influence on the Bitcoin network is waning.

The study analyzed the addresses and spending of miners and mining pools to determine whether their influence on the overall network has changed over time. Since miners receive newly mined Bitcoins instead of purchasing them, they are naturally net sellers of Bitcoin.

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

“On-chain metrics such as miner holdings and net transfers suggest that miners’ influence on the Bitcoin network is slowly waning.”

Operating costs such as electricity and rent are denominated in fiat currency, which increases the pressure to sell Bitcoin for fiat. The study found that the proportion of supply held by miners has generally decreased over time.

The number of Bitcoins held by addresses that receive block rewards, as well as those that receive instant transactions, has decreased.

The gradual reduction in the supply of Bitcoin held by miners and mining pools is even more evident when viewed from a total supply perspective. That being said, the report confirms that miners and mining pools will still control a “significant portion” of the total supply.

Miners, especially those active in the early days of the Bitcoin network, control a considerable number of Bitcoins.

But throughout the history of the Bitcoin network, the number of Bitcoins held by miners has generally declined.

— CoinMetrics.io (@coinmetrics) November 3, 2020

According to the chart, the number of bitcoins held by mining pools and miner addresses as a percentage of the total supply has fallen from around 25% in 2015 to around 18% today. Lower holdings mean that miners have less bitcoin to sell to the market, which reduces their impact on the price of bitcoin.

In the early days of the Bitcoin network, net flows were volatile as sales varied with price movements. However, volatility has decreased over time, likely due to Bitcoin halvings and reduced block rewards.

“These flows have also experienced a gradual reduction in volatility, indicating a gradual reduction in the influence of miners on liquidity.”

Several other on-chain metrics have also been declining recently, such as hashrate, which has dropped due to seasonal changes in China, where a large amount of mining takes place. The recent difficulty adjustment is also considered the largest downward adjustment during the ASIC era, according to CoinMetrics.