Miners: The driving force behind Bitcoin price fluctuations

In the world of digital currencies, Bitcoin is undoubtedly the most dazzling star. The price fluctuations of this cryptocurrency often surprise investors, sometimes doubling or even halving overnight. Behind this, the role of miners is often overlooked. The latest data shows that miners may be one of the driving forces behind the sharp fluctuations in Bitcoin prices. So, how do miners affect Bitcoin's price fluctuations?

First of all, miners are an important part of the Bitcoin network. They verify transactions and maintain the security of the network by calculating complex mathematical problems. Every time a block is successfully mined, miners will receive a certain amount of Bitcoin as a reward. As the circulation of Bitcoin increases and market demand changes, the behavior of miners directly affects the supply and demand of Bitcoin. The total amount of Bitcoin is limited to 21 million, which means that once miners speed up mining, the number of Bitcoins circulating in the market will also increase, eventually leading to price fluctuations.

When market demand is high, miners tend to increase mining efforts in order to obtain more Bitcoin. However, when market demand decreases, miners may slow down mining due to reduced profitability. This imbalance between supply and demand often causes sharp price fluctuations. For example, in 2020, the price of Bitcoin experienced a sharp rise, partly because miners stepped up their mining efforts after seeing the increase in market demand, resulting in a rapid increase in the number of Bitcoins circulating in the market.

In addition, the investment behavior of miners will also have an impact on the price of Bitcoin. Many miners do not sell Bitcoin immediately after mining it, but choose to hold it for a long time. This "hoarding" behavior will cause a decrease in the number of Bitcoins available for trading in the market, thereby pushing up prices. On the contrary, when miners feel that the market is sluggish, they often choose to sell their Bitcoin, which leads to a drop in prices. In 2018, the price of Bitcoin experienced a significant decline, partly because miners sold their Bitcoins when the market was sluggish, which accelerated the price drop.

The behavior of miners is not only affected by market demand, but also closely related to the difficulty of Bitcoin mining. The Bitcoin network automatically adjusts the mining difficulty according to the current mining power to maintain an average speed of generating one block every 10 minutes. When the number of miners increases, the difficulty of mining increases, which makes the cost of mining rise, and some inefficient miners may exit the market. Conversely, when the number of miners in the market decreases, the difficulty of mining will also decrease, mining becomes easier, and may attract new miners to join. This dynamic change makes the behavior of miners have a profound impact on the price of Bitcoin.

Globally, the concentration of miners also affects the price of Bitcoin. Take China as an example. It once accounted for the vast majority of the global Bitcoin mining computing power. However, as the government's regulation of cryptocurrencies became increasingly strict, many miners were forced to move to other countries. This large-scale migration not only caused a sharp drop in computing power in the short term, but also directly affected the supply and price of Bitcoin. In 2021, the withdrawal of Chinese miners caused Bitcoin prices to fluctuate sharply, and the market's expectations for future supply also changed accordingly.

In addition, the electricity cost of miners is also a factor that cannot be ignored. Mining requires a lot of electricity, and rising electricity costs may force miners to adjust their mining strategies. Many miners consider the price of electricity when choosing a mining location. Therefore, fluctuations in electricity prices in certain regions will also directly affect the profitability of miners, thereby affecting the market price of Bitcoin. For example, low electricity prices in some countries have attracted a large number of miners to come to mine, and miners in these regions tend to increase their mining efforts when market demand is high, further driving up the price of Bitcoin.

In addition to the above factors, the psychological expectations of miners will also affect the price of Bitcoin. Changes in market sentiment often lead to changes in miners' decisions. When the price of Bitcoin rises, miners will feel optimistic and increase their investment in mining; when the price falls, they may choose to wait and see or reduce production. For example, when the price of Bitcoin hit a new high, many miners increased their investment and purchased more mining equipment, resulting in a rapid increase in the supply of Bitcoin in the market, forming price fluctuations.

When summarizing the impact of miners on Bitcoin price fluctuations, it can be found that their behavior is not only affected by the market supply and demand relationship, but also closely related to multiple factors such as mining difficulty, electricity costs, and market sentiment. Miners, as important participants in the Bitcoin ecosystem, play an indispensable role. Their decisions and behaviors directly affect the price of Bitcoin and may even trigger a series of market reactions.

In the future, the volatility of the Bitcoin market will continue to exist. The behavior of miners will continue to be one of the important factors affecting prices. With the advancement of technology and the evolution of the market, the mining methods and investment strategies of miners will continue to change. This requires us to pay attention to the dynamics of miners and understand the role they play in the entire ecosystem when observing Bitcoin price fluctuations.

The latest data shows that miners may be the driving force behind the sharp fluctuations in Bitcoin prices. Miners sold off before the bottom. On October 11, blockchain analysis company Token Analyst published its latest analysis on social media, saying that miners' selling of Bitcoin directly affected its price trend. This statement was well supported last year. When BTC fell to $3,100 at the end of last year, a large-scale sell-off occurred "just in time". A large number of Bitcoins were transferred to exchanges in June and August, which "further depressed the price." Token Analyst concluded: "We found that miners took advantage of market volatility with the Bitcoin they mined, and then sold during periods of huge price fluctuations." The data was based on research by Elias Simos, senior research analyst at Decentral Park, in early August. Simos tracked the whereabouts of Bitcoin mining rewards and found that more individual miners shared these Bitcoins before the block reward halving in 2016. The "three eras" of mining

Let's take a look at what Elias Simos's research says (the following is compiled by Odaily Planet Daily based on Twitter content):

The figure below shows the distribution of block rewards received by miners since the first BTC block was mined.

Here it is divided into 3 different stages of development, namely:

1) The hobbyist era

2) The exploration era

3) The professional era

1\. Amateur era: There is almost no organized mining activity, and the daily distribution of block rewards is inconsistent.

In US dollars, the vast majority of daily returns are below $100,000.

2\. The exploration era: Mining pools joined mining at the beginning of the second bear market.

The returns (block rewards) denominated in Bitcoin have become much smaller, and the huge changes in returns can now be attributed to price fluctuations.

3\. Professional era: This is an era when individual ("anonymous") miners are eliminated. Starting with the block reward halving in 2016, and continuing to today.

Initially, 70% of rewards went to non-pool-affiliated entities. However, that number is now around 25%.

4\. Throughout history, there seems to be a negative correlation between reward volatility and industry specialization. Of course, we should consider the mining difficulty increase factor, but this is an interesting and perhaps underestimated angle.

5\. In addition, over time, the source of reward volatility has shifted from issuance to market price. Although long-term BTC/USD price volatility continues to decline, the increase in mining profits seems to be outstripping the increase in price.

6\. Therefore, the industry environment seems to be changing, which is beneficial to entities with abundant funds and a preference for short-term profit.

Will the next era be the "corporate era" or will it surprise us? I tend to lean towards the former.

Miners Manipulating Prices?

There has been a growing narrative around miners controlling the price of Bitcoin, and the data from Token Analyst has undoubtedly added fuel to the fire.

As Bitcoinist has previously reported, well-known commentators are also becoming more aware of this phenomenon. Chief among them is PlanB, whose Bitcoin price prediction based on the Stock-to-Flow model has demonstrated the importance of miner participation.

Another well-known hypothesis, proposed by Filb Filb, Cole Garner and others, is that miners maintain the lowest Bitcoin price.

This week, Garner mentioned Satoshi Nakamoto's support for this concept. In 2010, Nakamoto claimed that the price of a commodity "tends to move closer to its production cost."

"If the price is below the cost, production will slow down; if the price is above the cost, profits can be made by producing and selling more products," Garner added.

Therefore, under the current circumstances, it is unlikely that miners will sell Bitcoin at a price lower than $6,400. We can then conclude that this number represents a new bottom price for Bitcoin.

The next halving, which is coming in May 2020, is a critical moment for everyone. As in 2016, Bitcoin will start to create new historical highs after the block reward drops to 6.25 BTC per block.

In this market full of variables, investors should remain vigilant and rationally analyze the behavior of miners and market trends in order to make more informed investment decisions. At the same time, as holders and users of Bitcoin, we should also pay attention to the interests of miners and the sustainable development of the ecological environment, and promote the healthy development of the cryptocurrency industry. After all, miners are not only the driving force behind Bitcoin price fluctuations, but also an indispensable part of the entire digital currency ecosystem.

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