Will the market still be good?

Mining confidence in Bitcoin continues to grow recently, with hash rates hitting new highs. However, on-chain transaction volume has been sluggish recently due to investors' apparent lack of confidence in the market.

Summary

• In the mining sector, hash rates are currently slightly below all-time highs. Despite a recent drop in revenue, miners are continuing to increase their investment, indicating that this group is still bullish on the market.

• Investors are moving less money to trading platforms, and trading volumes are shrinking across the board, indicating that investor interest in trading has waned.

• Both Bitcoin and Ethereum ETFs have seen net outflows. However, investors are clearly still more interested in the Bitcoin market than the latter.

Miners Trend Analysis

Miners remain important participants in the Bitcoin network and the main producers of new coins. They continuously provide hash power for new blocks, and in return, they will receive newly minted Bitcoins and transaction fees as rewards.

There is no doubt that Mining is an extremely risky industry. Because Miners can neither control the cost of the energy they invest nor the cost of Bitcoin output.

Despite unstable market conditions, Miners continue to deploy new ASIC hardware, which drives the total computing power of the entire network to continue to rise (14-day moving average), reaching 666.4EH/s, only 1% lower than its historical peak.

Figure 1: Average hash rate of Bitcoin network

As we know, as the hash rate fluctuates, the Bitcoin protocol automatically adjusts the difficulty of producing blocks. Therefore, as the hash rate increases, the difficulty of successfully mining new blocks will also increase accordingly.

Currently, the average hash rate required to mine a new block is 338,000 exahash. This is the second highest historical record since the birth of Bitcoin, which highlights the increasingly fierce competition in the mining field.

Figure 2: Mining Difficulty (14-day Moving Average)

However, since the price of the currency hit a new high in March, Miners' income has dropped significantly. A large part of this is attributed to the decline in fees - due to the decline in overall market liquidity and the decline in transaction fees related to Runes and Inscriptions.

At present, the spot price of Bitcoin is still above $55,000. Therefore, Miners' income related to block subsidies is still relatively high, but it is still about 22% lower than the previous peak.

• Block subsidy income: $824 million

• Transaction fee income: $20 million

Figure 3: Miners' income details (30-day moving average)

But as Miners' income declines, we believe that they will gradually begin to face financial pressure. We can see whether the facts support our inference by studying their Mined-Supply percentage within 30 days.

Due to the capital-intensive and highly competitive mining industry, most of the bitcoins mined by Miners are used by them to pay for the high hardware costs. But it is worth noting that they will "retain" some of the bitcoins they have mined recently, instead of selling them all as they did in the past.

This is quite interesting because Miners' trading strategies are often pro-cyclical - during the decline, they are sellers, and when the price of the currency rises, they will transform and turn into long-term holders. But recently, the hash rate has been rising, which means that the production cost of Bitcoin is getting higher and higher, which may affect the profitability of the Miners group in the near future.

Figure 4: Mined-Supply percentage of the Miners group

On-chain settlement slows down

The size of the on-chain settlement volume can also reflect whether the current market is healthy. Looking at the entity-adjusted volume alone, the total volume of transactions settled on the entire network is approximately $6.2 billion per day.

This indicator has recently fallen to the annual average, indicating that both network utilization and throughput have declined significantly. Generally speaking, this phenomenon has a more negative significance.

Figure 5: Bitcoin asset transfer volume momentum

Declining willingness to trade

Despite the changing market landscape, CEXs remain a core hub for speculative activity and price fluctuations. Therefore, by evaluating the on-chain volume of these CEXs, we can get a glimpse into the current investor willingness to trade.

Analyzing the 30-day/365-day crossover of CEX asset inflow and outflow momentum, we can see that in the recent period, the monthly average volume is far below the annual average. This highlights that investor demand is declining, and price speculation is also decreasing within the current price range.

Figure 6: Bitcoin volume momentum

Next, we will look at the spot volume of the exchange. Here, we focus on the 90-day MinMax scalar, which standardizes the fluctuations within the +1/-1 standard deviation range of the volume extremes in a specific time period.

This indicator also reveals to us the fact that spot volume continues to decline, which confirms our point from another perspective.

Figure 7: Bitcoin spot volume momentum (90-day normalized)

In addition, we introduce the CVD indicator to estimate the current net balance between buying and selling pressure in the spot market. We noticed that investors' selling pressure has been increasing over the past 90 days, which also led to a drop in prices.

Figure 8: Spot CVD indicator (90-day normalized)

Finally, we evaluate Bitcoin's price momentum. We can see that the indicator has been hesitant to some extent, with both positive and negative values ​​in August. This is in stark contrast to the previous two indicators, which were both negative during the same period.

Figure 9: Spot RSI indicator (90-day normalized)

Combining the three indicators of volume, CVD and MinMax, we can generate an investment sentiment heat map with eigenvalues ​​between 1 and -1. Next, we will consider it in the following numerical framework:

•     A value of 1 indicates high risk

•     A value of 0 indicates medium risk

•     A value of -1 indicates low risk

Figure 10: Investment Sentiment Heat Map

ETF Situation Analysis

After the Bitcoin ETF was launched in January, the Ethereum ETF followed in August. These two events have a milestone impact on the digital asset industry. Together, they provide a shortcut for the traditional financial market in the United States to access these two mainstream digital assets.

On the Bitcoin ETF side, the capital flow of the US dollar has weakened since August 2024. Currently, $107 million is flowing out of the market every week.

Figure 11: Asset Flow of US Spot Bitcoin ETF (7-day Moving Average)

The recent performance of Ethereum ETF is also stagnant, with net outflows. It is mainly caused by the redemption of Grayscale ETHE products, and the asset inflows from other channels are not enough to offset the redemption outflows.

The total outflow of Ethereum ETF is -13.1 million US dollars. This highlights the huge difference between the current market sizes of Bitcoin and Ethereum.

Figure 12: US Spot Ethereum ETF Asset Flows (7-day Moving Average)

To approximate the impact of ETFs on the Bitcoin and Ethereum markets, we normalized the net flow deviation of their ETFs by spot trading volume. The ratio allows us to directly compare the relative weights of ETFs in the two markets.

As shown in the figure below, the relative impact of ETFs on the Ethereum market is roughly equivalent to ±1% of spot trading volume, while that of Bitcoin ETFs is ±8%. This shows that the market interest in Bitcoin ETFs is still far greater than that of Ethereum ETFs.

Figure 13: Comparison of Bitcoin/Ethereum ETF Market

Summary

Miners still show great confidence in the Bitcoin market, and despite a sharp drop in revenue, the hash rate is only slightly below its historical high.

However, since the trading behavior of this group tends to be procyclical - during declines, they are sellers; and during increases, they are holders. Therefore, if the price falls further, they may turn to further sell Bitcoin.

At the same time, transactions in the market continue to decrease, and trading volume shrinks across the board, indicating that investors are not interested. In terms of institutions, this trend is equally obvious, with net outflows of assets in both Bitcoin and Ethereum ETFs.