Do mining data and various on-chain metrics offer any insights into cryptocurrency market movements? Or is the majority of on-chain data analysis noise? Three traders and market analysts join the Compass livestream to discuss the utility (or lack thereof) of mining data for interpreting market movements.

This livestream is essential watching material for miners interested in understanding the effect of mining on the broader market and for aspiring on-chain data analysts to understand how and how not to use cryptocurrency data.

Video Recording

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Watch previous livestreams here.

Audio Version

Show Notes

Introductions (timestamp)

  • Karim Helmy, research associate Galaxy Digital
  • Joshua Frank, CEO The Tie
  • Sam Trabucco, Alameda research

Is there alpha in mining-related and on-chain data? (timestamp)

  • Karim: most on-chain data doesn’t have value for trading, but it reveals info about the network
  • Joshua: mining and on-chain data are different, most funds are not using on-chain data for trading.
  • Developer and early user selling is an interesting metric
  • Sam: transfers between wallets can be useful, discover big transfers and big sellers.
  • Many people are bad at interpreting on-chain data
  • Tether trades rich when someone sells bitcoin to buy tether, many people think minting tether means buying bitcoin
  • Wallet address labeling is misleading and makes on-chain analysis easy to interpret
  • On-chain analytics makes sense for Defi
  • Not many of those users are mindful of privacy, they leave a lot of their information exposed

Do miners move the market? (timestamp)

  • 900 bitcoins a day are mined. That is not enough to move the market
  • Crypto market volume is high enough that selling 100s of bitcoin has no impact
  • Miners liquidate most of their coin anyways to cover costs regardless of news
  • Some miners are set up with OTC desks to lessen the impact of their selling
  • Any impact of miner selling will always be realized over a longer period of time
  • 45 million in selling pressure is negligible considering that institutions are entering the market daily
  • The most common on-chain metrics involve pools paying miners
  • Workflow: pool receives funds, pool pays miner, miner sells to cover costs and the pool keeps 2%
  • Useful metric: tracking 1 hop flows: tracking every address that has received a payout from a mining address and then tracking the flows in and out of those addresses

China banning mining and bitcoin's price crash (timestamp)

  • The sell-off after the mining ban in China was a broader market sell off (not just caused by miners)
  • Leveraged liquidations, Elon musk’s ESG comments, and China news all played into the crash
  • Negative regulatory news has become more impactful as institutions have started getting involved in the space

When will markets stop reacting to China FUD? (timestamp)

  • Karim: there is still liquidity on Chinese exchanges, the market will continue to react
  • Joshua: Over the past two weeks, there has been 15-20% rise across all crypto sectors during US hours vs zero impact on market during Asian hours
  • The market will adjust to Chinese news, the net impact will shrink every time it appears in the news cycle
  • The effects of the China news will become predictable

Low fees and transaction volume on Bitcoin (timestamp)

  • If there is low demand to transact on-chain, the market is cooling down
  • There are multiple interpretations to low fees and volume:
  • Positive: More people holding onto bitcoin expecting the price to go up
  • Negative: people aren’t using the bitcoin blockchain
  • When news of ETH transaction fees start dominating the news, it has positive effects on other chains
  • I wouldn’t include ether network fees in a model to try and gauge ether price

Effects of public mining companies on the bitcoin market (timestamp)

  • Is mining data more relevant for monitoring equities (public mining companies) than bitcoin (crypto)?
  • Joshua: none of our clients are looking at this data, but alpha is still possible.
  • Other mining companies, VC funds, and large asset managers are interested in this data
  • Some public companies are trading at 50x the value of the future mining equipment that they haven’t even received yet

Hashrate derivatives and other mining financial products (timestamp)

  • Low volume on many of these derivative products
  • Exchanges base revenue on volume, will only list higher volume products
  • Miners and mining stock investors can use hashrate futures as a hedge
  • Wafer quantity info can be used to trade hashrate futures; wafers are key components in mining machines
  • Miners can contribute hashrate to the pool and the pool will sell them back based on the expected value of coins they mined or the amount of work contributed to the coins that the pool actually mined
  • There are rental marketplaces to commoditize hashrate, i.e. nicehash
  • Derivatives on hashprice won’t be as liquid as bitcoin derivatives but they can be physically delivered in the form of routing hashrate through a hashrate exchange
  • Create a contract that pays out according to hashrate

Exchanges running mining pools (timestamp)

  • Exchanges want to own the customer
  • One interface is easier for the customer
  • Pools are not very profitable, but these pools will attract miners
  • Pool operators can then sell these miners other products

Hosted by Zack Voell and Will Foxley