What does it mean when Bitcoin miners sell more than they mine?

While Bitcoin (BTC) has continued its recent bullish run, those who produce new Bitcoins — known as miners — are continuously selling off their inventory.

According to the Coindesk Bitcoin Price Index, in the 13 days leading up to March 25, the price of Bitcoin, the world's largest cryptocurrency by market value, rose from $3,867 to $7,000. However, during this 81% price rebound, miners sold more Bitcoin than they produced, according to the Miners' Rolling Inventory (MRI) data. Miners' Rolling Inventory is an indicator created by cryptocurrency data company ByteTree to track changes in the inventory levels of Bitcoin held by miners. As shown in the figure below, when the price of Bitcoin was below $4,000, the 21-day rolling MRI indicator remained above 100. When the MRI is above 100, it means that miners are selling more Bitcoin than they are mining, that is, they are consuming inventory; similarly, when it is below 100, it means that miners are selling less Bitcoin than they are mining, that is, they are accumulating inventory.

The world’s largest cryptocurrency by market value rose from $3,867 to $7,000 in the 13 days to March 25, according to the Coindesk Bitcoin Price Index. But during this 81% rally, miners sold more bitcoin than they produced, according to the Miners Rolling Inventory (MRI), a metric created by cryptocurrency data company ByteTree that tracks changes in the inventory levels of bitcoin held by miners.

From the time when Bitcoin price was below $4,000 to the recent market recovery, the 21-day rolling MRI indicator has remained above 100. When the MRI is above 100, it indicates that miners are selling more than they mine, that is, they are consuming inventory; similarly, below 100 indicates that miners are selling less Bitcoin than they mine, that is, they are accumulating inventory.

As the price continues to rise, there is enough demand from miners to supply Bitcoin to the market.

Mining pools account for the largest share of Bitcoin flowing into exchanges and have a significant impact on prices, but some people believe that this market reaction is actually a positive sign.

Connor Abendschein, crypto research analyst at Digital Assets Data, said:

“When the price of Bitcoin rises sharply from its lows and buyers are able to absorb excess Bitcoin sold by miners with little to no impact on the market, it indicates overall market strength.”

Charlie Morris, founder and chairman of ByteTree, pointed out that Bitcoin miners’ inventory also decreased on Wednesday (March 25), tweeting:

“Bitcoin miners mined 1,588 BTC and sold 2,788 BTC on March 25. This move seemed to have a certain impact on the market, but the market accepted it.”

The price of Bitcoin fell from $6,700 to $6,500 that day due to miner selling, but quickly reversed the decline later that day.

However, other cryptocurrency market analysts believe that the daily changes in miners’ net sales are usually small, so it is impossible to make an optimistic and correct judgment on the overall market trend. Alexander S. Blum, COO of financial technology company Two Prime, explained:

“Bitcoin miners sold 2,788 BTC on Wednesday, which is not statistically significant enough to have a significant impact on the larger Bitcoin price trend. Compared to the number of Bitcoin transactions worldwide, miners’ sales are less than 1%.”

However, the fact that most miners are choosing to sell Bitcoin during the price recovery may also reflect underlying market strength. In other words, rising prices seem likely.

Still, cryptocurrencies are vulnerable to risk aversion in traditional markets. In the past few days, global stock markets have regained some balance thanks to the massive fiscal and monetary stimulus policies launched by the United States. However, the coronavirus epidemic does not seem to show signs of slowing down, and financial markets have not yet truly realized the economic losses, and perhaps the negative impact may be much greater than generally predicted. For example, in the week ending March 21, the number of initial unemployment claims was 3.283 million, which was expected to be 1.7 million and the previous value was 281,000. This is the first time in the history of the United States that initial unemployment claims have reached a million levels. The previous record was 695,000 during the world economic crisis in 1982, and this data is also far higher than the 667,000 during the financial crisis in 2008. The number of initial unemployment claims of 3.283 million is almost equivalent to 2% of the employed population in the United States. Due to the spread of the new crown pneumonia epidemic, the United States has set off a wave of layoffs, which may end the longest employment boom in the history of the United States.

Not surprisingly, some analysts are pessimistic from certain perspectives in the market. Peter Schiff, a well-known Wall Street analyst, cryptocurrency skeptic, and “gold diehard” tweeted on Thursday morning:

"If you think what's happening now is an economic crisis, you're wrong. This is a health crisis, followed closely by an economic crisis, and this crisis is driven by the Federal Reserve's fiscal and monetary policies. This crisis is much more serious than the Great Depression."

Finally, Chris Thomas, Head of Digital Assets at Swissquote Bank, concluded:

"We must remain cautious about another liquidity crisis." (Golden Finance)