Glassnode Weekly Report: Bitcoin Miners’ Revenue Hits All-Time High

Author: CHECKMATE

Translation: Favors

Bitcoin Market Overview

Bitcoin has performed very strongly this week after coming out of its second major bull market correction. The price opened at a weekly low of $48,918 and rebounded to a record high of $61,683 over the weekend.

Despite the strong performance of the spot market, Grayscale's GBTC product has been trading at a discount this week, closing at a -7.1% discount to net assets on Friday. This reflects not only the impact of the correction, but also the steady rise of new competition in the field of similar Bitcoin ETFs. At the same time, MicroStrategy announced the purchase of an additional 262 BTC for $15 million as part of their accumulating strategy.

Grayscale Premium Real-time Chart

Bitcoin selling behavior

As Bitcoin price performance continues to impress, it becomes increasingly important to assess how different market participants react to price increases. Generally, we distinguish between long-term holders (LTH), who have coins older than 155 days, and short-term holders (STH), who have coins younger than 155 days.

We base this on the observation that most of the liquidity supply traded daily consists of young coins that were last moved within the past few months. The chart below shows coin age, showing that in most cases, over 95% of coins are less than 3 months old (the white space at the top are coins older than 3 months).

Conversely, once a coin passes our 155-day threshold to become an LTH holding, it becomes increasingly less likely to be spent on a statistical basis, often only being revived during periods of volatility and at higher prices during bull markets.

Coin Age and Payments Chart

We often need to make assumptions about the different consumption behaviors of LTH and STH in order to accurately interpret on-chain transaction data.

• LTH We assume that they have a good understanding of the Bitcoin protocol and have a high conviction in the asset. They tend to buy coins at low prices in a bear market and realize profits in a bull market.

• We hypothesize that STHs are more likely to be new market participants and traders moving value between exchanges. Therefore, this group is more sensitive to price fluctuations and therefore more likely to spend coins soon after their last transaction.

• As the bull market progresses, LTHs will transfer part of their BTC wealth to STHs, while some STHs accumulate their coins and convert their coins into LTHs.

The chart below shows how many profitable coins each of these entities holds. Given that BTC prices are effectively at all-time highs, this accounts for nearly the entire supply (after filtering out exchange balances and other known entities).

We can see that since late November 2020 ($17,800), LTHs have gradually sold about 1.4 million BTC (blue, smooth downtrend), while STH has accumulated these coins and assumed volatility (red, volatile uptrend), which is typical of a bull market.

Compared to the 2016-17 cycle, the amount of coins currently held by LTHs and STHs is comparable to that around mid-2017. This cycle of LTHs actually comes from a higher base (holding more coins) than the previous cycle, which is due to more selling by miners and the long accumulation period of the bear market since 2018.

Real-time graph of profit and loss of coins

This paints a picture where the current demand for STH remains strong and LTH is gradually releasing coins at a slower pace. However, it should be noted that LTH also still has a larger supply on hand, which is good news for liquidity, but it may also become overhead resistance as prices rise further or a more sustained correction follows.

Circulating Supply Dynamics

In terms of global supply, the holding wave theory presents a view of the proportion of supply held by UTXOs that differ from their lifespan. As old coins are spent to realize a profit, they are transformed from old coins to young coins, and their lifespan is reset to zero.

The holding waves below show the percentage of the circulating supply that is less than 6 months old. The height of these waves increases as more coins are held longer (older coins become younger coins), and decreases as more coins are held longer (younger coins become older coins).

At all major peaks, the circulating supply of less than 6 months has continued to increase, reaching peaks of 50% or more. During the current bull run, about 35.9% of the circulating supply is less than 6 months old, indicating that a considerable portion of the currency is still firmly held by LTHs in comparison.

Holding Wave Chart

Back to the output-spending age group (SOAB), this time we don’t look at all young coins, but only at the selling behavior of LTH coins with a lifespan of more than 6 months. This chart shows us that increased LTH selling is usually associated with bullish rallies or extreme volatility in bear markets.

If we look back to the bull run in late 2017, LTH went through three stages:

Sell ​​on the rise: The price rises above the previous ATH, and LTH realizes profits in a strong market. SOAB shows that the price rises out of a major correction (yellow), and the expenditure increases.

Sell ​​on the Peak: The peak of the last rally was characterized by a decrease in LTH spending compared to the previous two rallies, which suggests a new situation has emerged. Will we have the same situation this time?

Selling on a decline: After the first bear market fell from $20,000 to $6,000, LTH selling reached an ATH because the price climbed back to $10,000, but the price at this time was already half of the high.

Old coin sales chart

For the 2020-21 bull run, the initial upside selling phase actually started relatively early as prices approached the previous $20,000 mark. A similar behavior occurred in the second phase, with prices rising to $42,000 before correcting to $29,000 in January.

In this recent correction, from $58,000 to $43,000 and now to its ATH of $61,300, the selling behavior of LTH is actually reminiscent of the peak phase in 2017. We can see that the selling is decreasing over time and at a lower level. In fact, throughout the bull market, the selling of LTH is significantly lower than the 2017 bull market.

LTH’s spending behavior certainly bears similarities to the late 2017 bull run. However, remember that history must be contextualized by the market dynamics of the time. For example, one development unique to this cycle is the explosive growth of crypto finance, lending services, and derivatives markets for hedging risk (both centralized and decentralized).

In addition to the introduction of major institutions into the market, spending behavior in this cycle will have unique characteristics as holders find new ways to access liquidity and risk management tools without disposing of their coins.

Weekly topic: Miner income hits ATH

This week, Bitcoin miner revenue hit an all-time high of $52,300/day. This is despite the block subsidy being halved in May 2020. Since miner costs (CAPEX and OPEX) are generally denominated in fiat currency, this has positive implications for the continued security of the Bitcoin protocol.

Bitcoin Mining Machine Revenue Chart

In the post-halving era, miners’ total revenue is typically around 1,000 BTC/day, consisting of block subsidies (around 900 BTC/day) and transaction fees, which have been fluctuating between 75-125 BTC/day.

Total transaction fees real-time chart

On-chain transaction fee payments related to exchange activity are also an interesting metric to track market movements and priorities. Currently, global transaction fees related to exchanges account for approximately 30% of on-chain transaction fees, with deposits accounting for approximately half of this at 14.65%.

Also note that most exchanges utilize transaction batching to make transaction costs more efficient, so while withdrawal transactions make up around 4.1% of the total fee market, they are likely to have more malicious combinations, especially compared to the 14.65% deposit fee, which is likely to be per transaction per user.