Crypto Valley Live (ID: cryptovalley)

Crypto Valley Live (ID: cryptovalley)

, Author: Karim Helmy, translation: Edward, reproduced by Odaily with authorization.

Miners are often blamed for falling bitcoin prices. These accusations are often unsubstantiated — and worse, they are sometimes based on faulty metrics that confuse pool payouts with miner payouts, ultimately misleading users.

Accurately assessing the extent and impact of miner sell-offs is critical to understanding the market. In Following Flows: A Look at Miners' On-Chain Payments, Coin Metrics unveiled a new method for estimating miner activity. This approach takes into account the way pool wallets are structured, allowing users to differentiate pool and miner activity.

In this post, we refine our estimates of miner activity with data on the relationship between miners and exchanges, allowing us to determine when and where miners sell coins. All metrics used in this article will be available in our upcoming 4.9 release of Network Data Pro.

Following the traditional experience, we found that miners tend to choose Huobi and Binance over other exchanges. We also found that traffic from mining addresses accounts for a small percentage of total exchange inflows, around 5.5% at the time of writing, and is not a major source of market volatility.

Mining Market Metrics

Coin Metrics’ miner-to-exchange flows are based on our existing estimates of miner and exchange activity. Existing inflow, outflow, and supply metrics provide useful context on market sentiment, exchange health, and network decentralization. Due to the different problem structures, exchange traffic and miner traffic are built on two different clustering techniques, each of which has its own drawbacks.

Exchange flow is estimated using common inputs as well as wallet owners, which assumes addresses that are inputs to the same transaction share a single owner. This technique is precise, but requires at least one seed address per exchange, limiting coverage to a predetermined universe of exchanges.

Trading on a centralized exchange usually requires users to deposit coins into the exchange, which is escrowed by the exchange operator. Mining generally works in a similar way: miners share resources with each other to improve the chances of finding blocks, and coordinate with centralized operators through mining pools. Mining pool operators typically receive newly mined coins to addresses they control before distributing coins to miners via payment transactions.

Coin Metrics’ miner flow illustrates this architecture by basing clustering on the hop distance of addresses from coinbase transactions. Addresses that have received Coinbase rewards, or 0-hop addresses, are assumed to belong to mining pools. A 1-hop address that has received payment from a 0-hop address is marked as belonging to the miner. This analysis is less precise than the common input-ownership analysis, but roughly mirrors the structure of mining pool wallets and provides better coverage.

Neither clustering can detect the use of fresh addresses, and the results of each clustering should be considered as rough estimates. Since exchange labeling is more precise, we favor this analysis when resolving conflicts: addresses marked as belonging to both a miner and an exchange are treated exclusively as exchanges.

By combining these two techniques, we can assess where miners deposit their coins, which roughly corresponds to where they sell them.

The flow of miner funds to exchanges is broadly similar to the inflow to exchanges overall, with a few key differences. Binance and Huobi are currently the best-performing exchanges, and Huobi’s share is significantly higher than its share of overall inflows.

Outflows from exchanges to miners are also dominated by Binance and Huobi. This suggests that miners are also buying on these exchanges.

As with inflows, Huobi has a significantly higher share of outflows compared to exchanges that do not operate mining pools. Binance is roughly evenly represented in both distributions.

In the future, miner-exchange traffic can be used as a proxy for the geographical distribution of mining rights. This will depend on assumptions that miners use exchanges in their region, and more complete exchange coverage is needed in order to paint a representative picture.

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Measuring miner-exchange traffic

Our approach can be used to assess the composition of miner-exchange flows and their overall size. Overall, mining pools are net depositors to the exchange, although the amount of funds transferred each day is small.

Perversely, miners appear to be net buyers based on our assumptions. This is likely a methodological problem caused by a number of factors.

One factor may be that the majority of miner selling is done off-exchange, meaning funds are not immediately sent to exchanges. The accumulation of early miners may also be a contributing factor, which can be addressed by filtering out funds from addresses that have not recently received funds from 0-hop addresses. Finally, payments from exchange-affiliated mining pools may be conflated with exchange withdrawals.

Despite this result, aggregate flows appear to be heading in the right direction; combined with exchanges-specific flows, they are granular enough to be useful. However, since the difference between these inflows and outflows is always unexpected, net flows calculated from these time series may be of limited value.

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traffic content

Miner-exchange flows are best understood in the context of their constituent flows. To get an idea of ​​the scale of miner-to-exchange flow, it's helpful to compare it to total miner flow and total exchange flow.

Funds transferred to exchanges typically represent a high single-digit percentage of miner flows, although this percentage has historically varied. Deposits to exchanges also account for a significant percentage of pool traffic.

Funds withdrawn from exchanges accounted for a higher percentage of miner inflows, likely due to exchange-affiliated mining pools and off-market sales. Funds withdrawn from zero-hop addresses generally represent a much smaller percentage of total traffic, although they have recently started to increase.

In theory, miner deposits to exchanges should correlate with selling, but in the past few years, miner deposits have generally only represented a single-digit percentage of exchange inflows. At the time of writing, miner deposits accounted for around 5.5% of exchange inflows. While the majority of miner selling is off-exchange, this figure may be upwardly biased due to the wide net cast by the 1 analysis method, meaning that the true on-exchange selling pressure provided by miners may be lower.

The lack of relationship between price and miner activity is evidenced by the low correlation between price and deposits. This lack of correlation holds true when training only on days when prices are down.

in conclusion

The lack of relationship between price and miner payouts can also be visually confirmed by comparing changes in price and miner deposits. These values ​​rarely move in tandem, indicating a low correlation. Although the distributions of the percent daily changes are skewed compared to the distributions of the fundamental variables, they are suitable for informal visual analysis.

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