Bitcoin Miner Capitulation Is An Overblown Fear: Analyst

Jaran Mellerud of Hashrate Index recently released a ‘comprehensive analysis’ on the thesis that a Bitcoin miner capitulation could put massive selling pressure on the market and cause a crash. The topic has been a recurring part of the discussion in recent weeks about whether the BTC bear market can be extended by the tight mining industry.

Charles Edwards of Capriole Investments stated two weeks ago that the miner capitulation has begun, as indicated by hashish bands. Investment giant VanEck also recently published an analysis that the bear market could extend into the second quarter of 2023 due to miner capitulation. The company predicted that BTC could bottom out at $10,000 to $12,000 in Q1 2023.

Mellerud counters this assumption by saying that miners’ total BTC holdings are not significant enough to move the spot market.

Are Bitcoin Miners Not As Powerful As You Think?

Hashrate Index analyst write that all miners must collectively own a significant portion of the circulating supply to have a meaningful impact. However, the question of the number of their holdings is a great mystery, although estimates exist.

On-chain data providers such as CoinMetrics and Glassnode provide the best-known guesses, by grouping wallet addresses according to their proximity to the Coinbase transaction. Mellerud argues that these numbers likely significantly overestimate miners’ Bitcoin holdings. CoinMetrics estimates 820,000 BTC for all miners worldwide.

Another possibility is to derive the figure from the Bitcoin holdings of public miners. Using these numbers, Mellerud estimates 470,000 Bitcoin.

With 19.2 million BTC currently in circulation, miners thus only hold between 2% and 4%. “The public image of miners as huge bitcoin holders and influential market participants may have been accurate ten years ago […]. Times have changed, and miners no longer have a meaningful share of the Bitcoin supply, Mellerud claims.

BTC Holdings By Miners Vs. Spot volume

But with potential selling pressure in mind, it is also important to know the size of the spot market to determine how well the market can absorb the selling pressure. According to Mellerud, the best way to estimate the absolute selling pressure of miners is to look at how much BTC they receive each day.

Generally speaking, around 900 newly minted Bitcoins flow into miners’ wallets every day. When miners sell less than 100% of their output, they accumulate Bitcoin; when they sell more than 100%, they reduce inventory.

The chart below shows that Bitcoin sales to miners peaked in June when they sold 350% of their production. For the rest of the year, the rate was a maximum of 150%.

Using Binance spot volume, Mellerud shows in the chart below that a selling pressure of 100% of production only accounts for 0.2% of spot volume. At 200% it represents only 0.4% and at 300% it is still only 0.6% of the total volume. Mellerud concludes:

Due to the small proportion of Bitcoin miners’ hypothetical volume compared to Bitcoin’s total spot volume, we see that Bitcoin should have more than enough liquidity in the spot market to accommodate the selling pressure from miners.

In a worst case scenario of Mellerud, where all miners dump the entire inventory within 30 days (equally distributed over all days), the selling pressure of 470,000 BTC (4,900 BTC per day) would only amount to 1% of the total spot volume.

Only if the holding actually amounts to 820,000 BTC and all were liquidated within 30 days, it could lead to a crash in the Bitcoin price, says Mellerud. Miners will then account for almost 7% of the spot volume.

Bitcoin price is currently experiencing a drop of around 3.5% in the last few hours. At press time, BTC was trading at $17,035.