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January 15, 2021

OnChain Reaction

Bitcoin Volatility Is Back With ByteTree’s James Bennett


ByteTree CEO James Bennett returned to discuss the metrics on the Bitcoin network over the past week. Volatility is back, and while it is high — hovering at about 80% over the past 30 days annualized — it remains low compared to other bull markets, as the below chart illustrates.

(1:03) “During the last bull market, volatility was consistently above 80% — pushing 100% even 150% — in January of 2018, so the tail-end of that bull market,” said Bennett.

Considering the amount of price acceleration we’ve seen over the last three to four weeks, it is positive that the volatility hasn’t gone too much higher. Most likely, it is reflective of the type of buyer that’s in the market.

Miner Revenue

Miner revenue is now close to an all-time highs. Miners are generating more than USD 30 million daily.  This metric peaked at USD 45 million, which is close to what we saw in late December. This time, however, it seems more sustainable.

Fees as a percentage of total revenues are at about 10%. So USD 3 million has been paid in fees to miners.  The other USD 27 million has come through the block reward, all of which is reflected in the gold line in the below chart.

(3:41) “[We can] see from January-April 2020…a really steady increase in the percentage of fees that make up total revenues. Although there have clearly been some spikes driven by changes in the short-term difficulty rate, we can see that there is a consistent uptrend as fees are making up more of the revenues,” said Bennett.

Miners Cashing In

Miners have been cashing in after a strategic pause in offloading their inventories. This is indicated in the blue line/MRI in the below chart, which shows the difference between what miners are generating and what they are sending out of those inventory wallets for the first time. When it’s rising, they are offloading inventory. When it’s falling, they are building up their inventory.

There was a steady increase in selling throughout 2020 as the price was increasing. That trend stopped in mid-November as inventories were built back up, Bennett explained. During that time, price was flat.

(5:07) “Miners are wise. They know what the market bid feels like. If they don’t think the price is going to hold their big movements offloading their inventory, then they’re not going to sell. So we can see that they’ve been holding back on that inventory” said Bennett.

Around Dec. 26/Dec. 27, that inventory they were stockpiling was suddenly unloaded in one large batch — about USD 300 million worth of BTC in one go. That’s continued to push the MRI back up toward 143%. So typically, as price accelerates upward, we see an acceleration in the rate that miners are offloading their inventory.

Inventory Levels

The below chart illustrates absolute tal inventory levels. So there were about 1.55 million BTC in inventory at the beginning of the year, and that has fallen to about 1.53 million BTC currently. Throughout the year, there’s been an offloading in the inventory. Generally the trend among miners has been a depleting of inventory, or selling into the increasing price.

(6:50) “So net about 20,000 BTC have been sold through this year, maybe 25,000 BTC. And those are moving out of miners’ [hands] and probably into the hands of people like Grayscale, possibly even PayPal’s new buyers and various other strategic interests who are looking to buy into this market for the long-term,” said Bennett.

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Gerelyn Terzo
Gerelyn caught wind of bitcoin in mid-2017 and after learning about the peer-to-peer nature of Satoshi's creation has never looked back. Previously she covered institutional investing and fintech for several major trade publications. Gerelyn resides in Verona, N.J.

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