The biggest cryptocurrency by market value fell 8% from $10,137 to $9,298 in less than five minutes during Tuesday's U.S. trading hours, dashing hopes for a continued upward move.
The price drop, however, has not deterred miners from running down their inventory.
According to data source ByteTree, miners have sold 920 BTC and generated 844 BTC in the past 24 hours, pushing their inventory down by 76 BTC and keeping the miners' rolling inventory (MRI) figure above 100%.
“Miners HODL [hold] when the market is weak, not because they are bullish, but because the market can’t take it. When they can sell, it is an indication that the market is well supported,” said ByteTree founder and Chairman Charlie Morris, who added that the MRI is currently high.
Morris’ theory contradicts popular belief that miners, being sellers, would want to sell high and hoard their bitcoin when prices are expected to rise.
However, the conventional wisdom could be challenged because miners mainly operate on cash, meaning they need to liquidate their holdings almost daily to fund the cost of mining. This is evident from the fact that miners account for the highest percentage of total bitcoin flowing into exchanges.
And while they have the biggest influence on prices, gyrations in price affect mining profitability. A sustained price drop often crowds out small and inefficient miners from the market.
Miners, therefore, would want to sell less in a market lacking the strength to absorb their offers. On the contrary, they would be inclined to sell more when the upward momentum is strong.
Hence, it could be said that the increased supply seen in the past 24 hours is a sign of miner confidence in a broader bull market, although some observers may argue that 24-hour changes are too small to draw valid conclusions.
However, inventory has declined over the past week amid the price rise.
Bitcoin is currently up 6% on a week-on-week basis despite miners running down inventory by 504 BTC. Similarly, miners have sold more than what they generated throughout the uptrend from the March low of $3,867 to recent highs near $10,400.
At press time, bitcoin is changing hands near $9,580, representing a 0.5% gain on the day. Analysts expect deeper declines in the near term.
"A break below $8,800 will see more aggressive selling,” said Nicholas Pelecanos, head of trading at NEM Ventures. “$8500 is the last support before price moves toward $7,000."
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