The Daily Dive #090 — Miner Outflows And Stock Performance
Miners Sell Less Bitcoin
One of the most stable trends over the last few years has been the constant sell pressure on the market from bitcoin miners as they are forced to sell new bitcoin to fund their operations. That sell pressure still exists today, but it has been diminishing over the last few months as miners start holding more of their produced bitcoin.
Right now miners are the most profitable they have been in the last 2.5 years and have more access to legacy equity and debt markets than ever before. The cycle is also primed for another bullish leg up which incentivizes miners to hold as much bitcoin as they can in anticipation of higher prices.
The below chart shows miner transfer volume sent to exchanges as a 30-day moving average. Prior to the previous all-time high runup, miners were sending bitcoin to exchanges at their highest levels over the last two years. Now miners are sending 65% less in transfer volume to exchanges than they were at that previous peak. The 90-day average tells the same story emphasizing the decline over the last six months.
Another way to look at this trend is to normalize miner transfer volume to exchanges by the number of newly-issued bitcoin. This matters more when comparing the transfer volume across halving cycles when the block reward has changed. Using a ratio of the 90-day average of miner transfer volume to the 90-day average of new bitcoin supply, the top of the previous all-time high coincided when miners were selling the most bitcoin as a percentage of newly-issued supply. That percentage has been declining since falling to two-year lows with declining miner transfer volume to exchanges.
Public Miners Stock Performance Continues
Public mining stocks have been on a tear the last two days with the five-day return now over 20% for most of the top public miner stocks, versus a bitcoin return of 7% and the S&P 500 Index of 1.1%. This is a similar story for select public miner stocks year-to-date performance with Marathon Digital Holdings, Hut 8 Mining, Bitfarms, and Hive Technologies all outperforming bitcoin’s 118% return, and well above the market’s baseline 23.30%.
The appreciation in short-term returns comes right before many public miners will be releasing their October production monthly updates over the next few days. We will cover those as they become available this week and next week.
Comparing performance over the last year, individual miner stocks are highly correlated with bitcoin and each other. Over the last six months, many strong correlations still hold as public miners move with bitcoin’s performance, although Riot and Bitfarms have relatively weaker correlations of the group. We can continue to expect these relationships to hold with public bitcoin miner performance to move up and down with bitcoin performance.
Miner Block Reward Breakdown
Transaction fees have yet to meaningfully pick up for bitcoin, with fees accounting for just 1.4% of miner revenue over the last two weeks. While the low-fee environment can definitely be attributed to the rapid ascent of the Lightning Network, increased Segwit adoption, and the market as a whole favoring HODLing, the low-fee environment also suggests that the “retail mania” phase of the bull market has yet to start.
It is also important to notice that despite the figure of fees as a percent of miner revenue hitting similar levels in 2021 to those of 2017, a look at the BTC denomination tells a different story. Why? Because of the built-in halving function that will see the block subsidy trend towards zero over the next 120 years.
Bitcoin is designed to pump forever (in value), thus it is likely that miner revenue (in BTC terms) will decline quite substantially over the long term.
