CryptoQuant data on January 20 shows an unusually sharp spike in Bitcoin miner outflows, an unexpected development given the solid performance of BTC prices in recent trading days.
Miner Position Index (MPI) is rising
The Miners’ Position Index (MPI) has increased from -0.85 recorded on December 31, 2022 to +3.25 on January 19, 2023. The expansion could indicate that miners are moving their coins to centralized exchanges at a higher rate.
The MPI is a rolling ratio of total miner outflows to the overall one-year rolling average of total miner outflows. All denominations are in USD.
According to CryptoQuant’s interpretation, the higher the MPI ratio, the more likely miners are to send mined coins to centralized exchanges, increasing the risks of a price drop.
For a sane view, it is recommended to use the MPI with other metrics, as it is believed that miners expressly sell their coins on top exchanges such as Binance, Coinbase or even on over-the-counter (OTC) exchanges.
Nevertheless, when used with various technical indicators, MPI flows can provide a rough indication of the financial condition of Bitcoin miners. The miners’ actions can give an indication of where the market could go.
In proof-of-work networks like Bitcoin, miners are compensated with coins to secure the platform against outside attacks and to confirm transactions. Bitcoin distributes 6.25 BTC for every block they successfully mined. This translates to about $131,000 in BTC. A block is released approximately every 10 minutes.
The price of Bitcoin explains the higher interest from miners compared to other proof-of-work networks such as Litecoin. With a hash rate of 275 EH/s on January 20, Bitcoin remains the most secure blockchain by this measure.
Bitcoin Miners Must Sell
Miners have to consume energy and buy equipment, which is why they are called mandatory sellers. Miners therefore need to move coins to crypto exchanges for cash to pay for services such as electricity or chipset manufacturers to stay competitive.
Since the Bitcoin network is transparent and all movements can be tracked, special analytics platforms and traders often monitor their activities. Recent data indicates that these miners are moving coins, possibly to exchanges for cash.
The spike from -0.85 to +3.25 coincides with Bitcoin prices stalling below $21,500. This retracement follows a sharp expansion that saw the coin strength move above $20,000 with increasing levels of participation, as evidenced by trading volumes.
Analysts said the rebound is due to shifting macroeconomic factors, especially in the United States, and recent data shows that inflation is falling and working conditions are firming after the effects of COVID-19.
Feature graphic by Andrey Rudakov/Bloomberg, chart by Trading View