On-chain analysis on Bitcoin mining activities

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

Meanwhile, some statistics 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 it 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 has hovered somewhat quietly around the psychological $30,000 threshold over the past 13 days, while providing some positive hints about future price action.

Particularly notable, the “adjusted SOPR” metric, which provides interesting data on the profitability/loss of BTC moves in the chain, 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 usually varies between the value of 1.3 and 0.7: when it is above the 1 level, it means that traders are selling their coins and making a profit, while when it is below 1, the sales should be considered as losses become

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

At the moment, the indicator has remained slightly above 1 for about two weeks, which says that few are selling at a loss and at the same time no big profits are being made.

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

Caution will have to be taken if the adjusted SOPR reaches extreme values ​​near 1.3, indicating an exaggeration of profits and euphoria beyond the ordinary.

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

Bitcoin Mining: Log Coin Flow to Exchanges

While some on-chain data is rooting for a return to Bitcoin’s bull market, on the mining front the data doesn’t appear to be so optimistic, at least at first glance.

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

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

On average, around 3,000 BTC were moved per day, which worries analysts of a possible capitulation.

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

So, this situation can cause negative sentiment.

Supporting the large flow of new Bitcoin minted through mining activities towards exchanges is another measure called the “Miner Position Index”.

This gives us details on the frequency of sales by miners, who necessarily need to cash out of their BTC to pay back operating expenses such as electricity and new hardware.

However, when there are above-average flows into exchanges, it can be a sign of an impending bear market.

In recent days, the Miner Position Index has been well above the “2” level which says that miners have moved more than usual.

At the moment, the flow seems to have subsided, giving a sigh of relief to 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 can sometimes be interpreted differently.

On exchanges, in addition to simply being sold, BTC can also be placed as collateral for open positions in derivative markets, which will preclude large ongoing sales and instead favor a picture familiar to early bull market phases

According to data from CryptoQuant, as of June 15, about 33,860 BTC were sent to exchange derivative markets

At the same time, miners’ reserves fell by around 8,000 BTC, so the missing coins were probably used to hedge their positions or speculate on a short-term rise in the cryptocurrency price.

This kind of behavior from those involved in Bitcoin mining associated with positive market price action is completely abnormal.

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

Energy sustainability of mining at the highest level

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

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

It is particularly interesting to note that the mix of sustainable energy has increased by 38% since July 2019, placing the business first in the energy transition to clean sources, behind only banking.

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

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

Additionally, as time goes on, the world is finding 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 generated by ASICs, machinery used in the Bitcoin mining process, to keep the temperature of his crop constant.