Bitcoin on-chain analysis: many coins from mining activities are headed for exchanges

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In this article we take a look at on-chain data for Bitcoin: new coins minted from mining activities are headed to exchanges giving bearish signals for the cryptocurrency.

Meanwhile, some metrics tell us that investors are not capitulating their positions because they expect a higher future price for BTC.

The king of the market is hovering around the key $30,000 level waiting to make the next move. Will this be upward or downward?

See all the details below.

Bitcoin mining: a look at on-chain data

Bearish signals on the mining front are on the horizon for Bitcoin, which for the past 13 days has been hovering somewhat quietly around the psychological $30,000 threshold while giving some positive hints about future price action.

Most notably, the “adjusted SOPR” metric, which provides interesting data regarding the profitability/loss of on-chain moved BTC, anticipates a bullish overall picture for us.

This indicator calculates the ratio of the price at which a coin was last moved to its initial purchase price, without taking into account internal movements between multiple wallets of the same individual.

The adjusted SOPR generally ranges between the value of 1.3 and 0.7: when this is above the 1 level it means that traders are selling their coins making profits, while when it is below 1 the sales are to be considered losses.

Theoretically, when the market is bullish, investors tend to avoid liquidating their positions at a loss, precisely because they expect future price rises: inversely these prefer to accept losses and exit the market when scenarios turn bearish.

Right now the indicator has remained slightly above 1 for about two weeks, stating that few are selling at a loss and at the same time no large profits are being made.

This is typical of situations that anticipate an impending bull market, which could push the price of Bitcoin in the direction of $40,000 and beyond in the short term.

There will be caution to be taken if the adjusted SOPR reaches extreme values close to 1.3, which indicates an exaggeration of profits and euphoria out of the ordinary. 

Very important to remember that we are in a historical period when liquidity and volumes on exchanges are at multi-year lows, so this phase can be seen as a consolidation before an imminent decisive price movement, with odds going for the upside.

Bitcoin mining: record coin flows to exchanges

While some on-chain data are rooting for a return to Bitcoin’s bull market, on the mining front the data do not seem to be so optimistic, at least at first glance.

As of 15 June, a huge amount of BTC in the hands of miners was being moved to cryptocurrency exchanges.

This is abnormal given that such an intense and prolonged flow has not been seen in the past 3 years of on-chain movements.

On average, about 3,000 BTC per day have been moved, alarming analysts of a possible capitulation taking place.

Indeed, exchanges represent the ideal place where miners profit from their activity by converting the proceeds into FIAT money.

So, this situation could cause negative sentiment.

bitcoin mining

Supporting the large flow of new Bitcoin minted by mining activity in the direction of exchanges is another metric called the “Miners’ Position Index.”

This gives us details on the regularity of sales by miners, who must by necessity cash some of their BTC in order to pay back operating expenses such as electricity and new hardware.

When there are above-average flows to exchanges however, this could be a sign of an impending bear market.

In recent days the Miners Position Index has been well above the “2” level stating that miners have been moving more than usual.

Right now the flows seem to have subsided, giving a sigh of relief for Bitcoin, which is currently not giving up an inch and remains firmly above $30,000.

Although these data are bearish, typical of bear markets, they could sometimes be interpreted differently.

On exchanges, besides being simply sold, BTC can also be put as collateral to open positions in derivative markets, which would rule out large ongoing sales and instead favor a picture familiar to early bull market phases

According to data from CryptoQuant, as of 15 June, some 33,860 BTC had been routed to exchange derivatives markets

At the same time, miners’ reserves fell by about 8,000 BTC, so the missing coins were likely used to hedge their positions or speculate on a momentary rise in the cryptocurrency price.

This kind of behavior on the part of those engaged in Bitcoin mining correlated with positive market price action is completely anomalous.

What is more likely is that the huge flow of coins to the exchanges had very little impact on price movement and that there were no big sales.

Energy sustainability of mining at the highest level

As the issues surrounding the movement of coins from mining activities become increasingly complex, Bitcoin is becoming more and more sustainable in the stages of its production.

In fact, compared to other industries, the mining industry is becoming increasingly sustainable, with 52.6% use of renewable energy.

In particular, it is interesting to note that the mix of sustainable energy has increased by 38% since July 2019, which ranks the business first in energy transition to clean sources, behind only banking.

Although common narratives tend to portray Bitcoin mining as environmentally deleterious, the reality of the facts is quite different.

Block production and validation by miners indirectly incentivizes massive use of renewable energy, which is also the least expensive energy source, and therefore the one preferred by this industry, in line with the concept of game theory.

In addition, as time goes on, the world finds new ways to intelligently use the hardware typical of mining.

In the Netherlands for example, a farm owner had the ingenious idea of harnessing the heat given off by ASICs, machinery used in the Bitcoin mining process, to keep the temperature of his crop constant.

Since Elon Musk warned the Bitcoin community about the danger of Bitcoin’s energy impact, improvements have been seen on all fronts.

Miners now prefer renewable sources to conduct their business, both because it suits them economically and because they fear being punished by regulators for violating ESG criteria.

In addition to a spread of best practices in terms of mining, there is a growing culture of respect for the environment and the importance of considering the impact that any activity can have on society at its base.

Even in Germany, a local TV station is talking about the “benefits” to the environment triggered by these activities.