James Bennett, CEO of ByteTree, provided the latest onchain insights and observations in the Onchain Reaction Segment. He discussed the onchain transaction value on Bitcoin over the last few days, saying it hit $5 billion settled per day as the price surged through $15K and up toward $16K as of Nov. 11. Typically, this only happens during bull markets. In January 2020, prior to the liquidity crunch that occurred in March, transaction value was above $5 billion. Prior to that, the only time it hovered at that level was during the late 2017 bull run.
(1:02) So it’s very exciting for bitcoin at the moment. Not only is the price surging, but we’re also seeing a pickup in onchain activity,” said Bennett.
Next, the second largest difficulty adjustment in Bitcoin’s history has encouraged miners to pick up the pace. Bennett explained how the difficulty rate was recently at an all-time high, which means the highest amount of hashpower in Bitcoin’s history was dedicated to the network. ByteTree was anticipating this because block times were slowing down. Block times got up to 12 minutes per block on a 14-day moving average, which led to one of the largest difficulty adjustments in Bitcoin’s history — the second largest drop of about 18%.
Bennett explained that they believe this was largely caused by seasonal adjustments. A large portion of the network is mined in China, and as the wet season arrives, the miners move out. They pack up their old rigs and send them abroad, which means they stop allocating that power to the network.
Block times have responded very quickly to that and have started coming down. Over the last couple of days, blocks are coming out a lot quicker than 10 minutes and even near eight minutes per block in some cases.
Bennett explored how this is impacting miner revenue, saying that surprisingly, miner revenue has reached and held above $15 million per day over the last few days. This was pretty impressive, he said, considering the number of new blocks coming through was lower. The trend was on account of the rising fees offsetting the reduction in block rewards. Fees peaked at about 22% of total miner revenue and are now starting to come back down to slightly more normal levels post-halving.
(3:45) “Up until the last few days, revenues had generally dropped after the halving but now are holding relatively steady. And again even above levels that we were seeing in late 2018 when we were in the bear market and of course with a higher block reward, but overall less interest in the network and less fees. So overall the mining ecosystem is looking healthy,” said Bennett.
Miner inventories are one of ByteTree’s favorite indicators to examine. Miners have been depleting their inventories at a very high rate that has not been seen since the 2017 bull market. ByteTree’s working thesis is that miners sell into a strong bid in the market. Bennett explained that when miners believe the price will hold up, and they think it’s a good opportunity to sell, we see them shifting large parts of their inventory, adding that this is exactly what’s happening now.
Bennett also explored what this means for inventories more broadly, or the rate of change in inventories. This reflects inventory this year compared to last year on a rolling 12-month window as a percentage of the total inventory available. He said the rate of change inventory selling is consistent with an early bull market.
(5:28) “Inventories remain net zero,” he said, adding that it’s not the trend the market typically sees.
Bennett also said we’re starting to see the beginning of the next bull market, which is the current one we’re in. He concluded that miners are an excellent source of information on the market.