Key Indicators Diving into Ethereum Miners’ Activity Post-Merge
Analysis of miners’ positioning in a post-proof of work Ethereum
In proof of work blockchains, miners play a key role by validating transactions and contributing resources to secure the network. In compensation for their contributions, miners are rewarded with coins which are issued every block. Following Ethereum’s merge, the network replaced miner services with a Proof of Stake approach that relies on validating new blocks for the chain instead of traditional Proof of Work mining. The merge decreased ETH issuance by 85%-90% to 1700–1800 ETH per day. Assumptions were made that by rewards decreasing and not being available to be withdrawn, since they are locked on the Beacon Chain until the next major upgrade, ETH selling pressure will also decrease.
It took many investors by surprise seeing that ETH’s price has decreased 12% since the anticipated merge. The event is being described as a “buy the rumor, sell the news” one. Many are also blaming macro economics trends and correlations to the crypto market. On-chain data shows that old Ethereum miners may also be in part responsible for the recent increase in selling pressure and price decrease.
Ethereum miners’ holdings had been on a continuous decline in dates before the Merge took place. Moreover, when the merge took place on September 15th miners’ reserves dropped from $124 million to $92 million. This represented 17k ETH sold during these dates, which is the equivalent of a 16% decrease in the total miners reserve.
The Miner Reserves metric is useful to observe changes in miners’ holdings, particularly during significant events like in this case the Ethereum Merge. Drops in reserves make sense in the context that Ethereum miners no longer have a direct relation with the network, since they no longer secure it. Therefore, the drop in reserves is likely to continue.
Furthermore, analyzing Miner Netflows on-chain data we are able to track flows from miner’s addresses and be able to examine their daily actions. In this case the indicator equals inflows minus outflows, meaning that if more funds leave miners’ addresses than flow into them netflows will be negative.
Miner Netflows is one of the most useful indicators to fully understand the behavior of miners. Since inflows and outflows tend to move in tandem, the difference between them is more valuable than either separately.
In the graph above, we can clearly see two sharp drops in miner netflows. This means that the amount leaving miners’ addresses was much higher than the amount entering them. Furthermore, these were the two major sell offs seen on miners netflows during the last 3 months, the first one being of $18 million and the second one on the date of the merge being of $16 million.
By putting miners’ activity into context of total volume, we are able to understand the share of total activity and potential impact miners’ outflows had on the market.
As seen above, during the same two dates that miners’ net flows had sharp drops, their volume represented a higher percentage of the total market. On September 4th prior to the merge, miners addresses reached a total of 3.13% of the total market volume, this marked a yearly high.
After this major event it can be seen that the significance of miner activity has been decreasing significantly, as of September 21st being 0.1%. This is a valuable indicator to understand how miners’ addresses affect on-chain markets. Although miners no longer secure the network, they manage a significant amount of ETH on their reserves. As of September 21st miners reserves still have a value of $86 millions.
In conclusion, the analysis on the above indicators helps us assess the impact that old miners are having on the current network. This is useful since understanding how miners adjust their holdings based on the new market conditions allows us to comprehend their intentions with the new network. Many suggest that their current lack of direct relation has led them to exit the ETH space entirely to free up capital for new ventures.
