Bitcoin Network Overview: Miner Confidence Remains Strong, But Trading Volume and Investor Interest DeclineBitcoin network's hash rate remains near all-time highs with miners continuing to invest in new hardware despite declining miner revenue, demonstrating their unwavering confidence in the network. However, interactions between investors and exchanges are showing a declining trend, with overall trading volume shrinking, indicating waning market participant interest
Bitcoin Network Overview: Miner Confidence Remains Strong, But Trading Volume and Investor Interest Decline
Bitcoin network's hash rate remains near all-time highs with miners continuing to invest in new hardware despite declining miner revenue, demonstrating their unwavering confidence in the network. However, interactions between investors and exchanges are showing a declining trend, with overall trading volume shrinking, indicating waning market participant interest. Both Bitcoin and Ethereum ETFs have seen outflows, but investor interest in Bitcoin ETFs remains significantly higher than Ethereum ETFs.
Miners: Strong Confidence, But Profitability Pressure Emerges
As fundamental participants in the Bitcoin network, miners are the primary source of new coins. They contribute computing power to mine and are rewarded with newly minted coins and transaction fees. Mining has evolved into a challenging industry due to uncontrollable energy costs and BTC production costs. Despite volatile market conditions, Bitcoin miners continue to install new ASIC hardware, driving the overall hash rate (14D-MA) to 666.4 EH/s, just 1% below its all-time high.
As the hash rate rises, so does the mining difficulty. The Bitcoin protocol automatically adjusts the difficulty to accommodate fluctuations in the network hash rate. Currently, the average hash required to produce a block sits at 338kexahash, marking the second highest difficulty in Bitcoin history, highlighting the intensifying competition in the mining industry. However, miner revenue has significantly declined since market prices hit new highs in March this year.
The primary reason for the revenue decline is the reduced pressure on transaction fees, driven by lower demand for currency transfers and decreased transaction fees arising from rune and inscription-related transactions. While the spot price exceeds $55,000, miner revenue associated with block subsidies remains relatively high, but still approximately 22% below its previous peak.
Revenue: $824 Million (Block Subsidy) + $20 Million (Transaction Fees)
As revenue declines, miners may face a degree of profitability pressure. We can gauge the extent of this pressure by estimating the percentage of mining supply spent by miners in 30 days. Due to the competitive and capital-intensive nature of the mining industry, miners have historically needed to allocate a substantial portion of mined coins to cover input costs.
It's worth noting that miners have transitioned from net allocating the majority of mined coins to retaining a portion in treasury reserves. This shift suggests that miners are no longer selling BTC as aggressively during market downturns as they once did, but instead holding during upward trends. The rise in hash rate and difficulty translates to a higher cost of BTC production, which could negatively impact miner profitability.
Trading Volume: Network Utilization and Throughput Decrease
The volume of on-chain transactions reflects network adoption and health. After filtering for entity adjustments, the network processes and settles approximately $6.2 billion worth of transactions daily. However, settlement volume has begun to decline toward the yearly average, indicating a clear drop in network utilization and throughput.
Investors: Trading Interest Wanes, Funds Flow Out of ETFs
Centralized exchanges serve as hubs for speculative activity and price discovery. We can gauge investor activity and speculative interest by assessing on-chain trading volume on these venues. The 30-day and 365-day momentum crossover reveals that monthly average trading volume sits well below the yearly average, highlighting diminished investor demand and reduced speculative trading within the current price range.
The momentum of spot trading volume has also continued to weaken, further confirming the substantial drop in trading activity observed in the last quarter. The CVD metric can estimate the net balance between current buying and selling pressure in the spot market. This metric shows that investor selling pressure has been increasing over the past 90 days, contributing to downward price movement.
Combining volume, CVD, and price behavior through MinMax transformation, we can generate a sentiment heatmap characterizing values between 1 and -1. All three indicators suggest that the market is entering a low-risk zone relative to data points over the past 90 days.
ETFs: Bitcoin ETFs Remain Favored, But Outflows Persist
Ethereum ETFs launched in August of this year, following the debut of US Bitcoin ETFs. These two events mark a significant milestone for the digital asset ecosystem, providing traditional US markets with an accessible entry point to the leading two cryptocurrencies.
Since the launch of Bitcoin ETFs, net capital inflows in US dollars have weakened, with current outflows standing at $107 million per week. Recent demand for Ethereum ETFs has been relatively subdued, with net negative outflows occurring. This is primarily due to redemptions of the Grayscale ETHE product, with inflows from other instruments failing to offset this demand.
Overall, total outflows for Ethereum ETFs amount to $13.1 million. This highlights the difference in the scale of demand between BTC and ETH, at least under current market conditions.
To approximate the impact of ETFs on the Bitcoin and Ethereum markets, we have normalized the ETF net flow deviation by the corresponding spot trading volume. This ratio enables us to directly compare the relative weight of ETFs in each market.
The results demonstrate that the relative impact of ETFs on the Ethereum market equates to 1% of spot trading volume, while Bitcoin ETFs equate to 8%. This indicates that, despite Bitcoin ETFs being normalized, interest in Bitcoin ETFs remains an order of magnitude larger than Ethereum ETFs.
Summary
While miner revenue has declined significantly, the hash rate remains slightly below all-time highs, indicating the immense confidence miners have in the Bitcoin network. However, as miners tend to be procyclical, selling during downturns and holding during upturns, it's reasonable to expect a degree of selling pressure if further declines occur.
Meanwhile, investor interaction with exchanges continues to decline, with overall trading volume shrinking, suggesting weakening investor and trading interest. This is also evident among institutional investors, with both Bitcoin and Ethereum ETFs experiencing net outflows.
The decline in investor and trading interest, along with ETF outflows, despite robust hashrate and miner confidence, suggests a shift in market sentiment. Future market direction will hinge on factors like price action, miner profitability pressure, and investor sentiment.
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