In the years and months leading up to the Ethereum blockchain’s historic shift last week to a more energy-efficient system, data miners working for rewards on the network had accumulated nearly $341 million worth of the cryptocurrency ether (ETH).
Now, a week after the Merge, crypto analysts are warning that miners’ sales of their hoards could become a source of near-term, downward pressure on the cryptocurrency's price, with the market already sinking by 19% in the past month.
“Miners dumping their ETH is an overhang that we’ll have to get through over the coming months in order to resume up-only mode, but it will happen,” Lucas Campbell, editor of the Bankless newsletter, wrote Monday.
Blockchain data assembled by OKLink appears to show miners starting to sell down their stashes over the past week.
Ethereum miners dumped over 16,000 ETH from Sept. 12 to Sept. 19. (The Merge took effect on Sept. 15.) The decline reduced the miners’ combined balance to about 245,000 ETH, or about $319 million worth.
Lucas Outumuro, head of research at IntoTheBlock, attributed the decline in the balances to “miners moving onto other chains.”
They’re “taking profits from their ETH holdings,” he said.
It’s also possible that some miners may have sent some ether to exchanges to handle an “airdrop” of new tokens from a splinter blockchain that aimed to continue on with the Ethereum blockchain’s now-abandoned “proof-of-work” system, Outumuro said. That effort has since mostly fizzled.
Ether’s price had soared in the weeks before the Merge, as some traders also jockeyed for the airdrop, while others speculated that the shift might lead to a surge in institutional investment. But when the Merge actually took place, the cryptocurrency's price suddenly plunged – in what analysts termed a “buy-the-rumor, sell-the-fact” market reaction.
The sell-off also coincided with the runup to this week’s Federal Reserve’s meeting, which included a pledge to aggressive monetary policy that has put downward pressure on risky asset prices, from stocks to cryptocurrencies.
“If miners had accumulated Ethereum at a profit, or they need to pay their electric bill, they would be incentivized to sell at a profit, especially with the expected and actual increased volatility,” said Alexandre Lores, director of blockchain market research at Quantum Economics.
”For the first time, these miners have no future business relationship with Ethereum,” Lores said
It's possible that miners' move may have contributed to the immediate weakness in prices post-Merge, according to Jeff Dorman, chief investment officer of digital-asset management firm Arca. The ether price was trading around $1,300 Thursday.
It’s not a sure thing that all miners will liquidate their holdings, Dorman said.
“Maybe some [miners] will turn into speculators and hold on for better price,” Dorman said. “Maybe some will turn into stakers and secure the new network, but that [mining] business is over." The new network relies on "stakers" – investors who help to secure the blockchain by "staking" their ether – instead of the energy-intensive "proof-of-work" mining that Ethereum previously used.
To be sure, the miners’ remaining holdings represent a fraction of the total ETH supply of 119 million, based on CoinDesk data.
Ex-Ethereum miners who choose to continue proof-of-work mining can shift to a different chain. Related altcoins’ prices have seen a significant increase, with Ravencoin (RVN) up 64% and Ethereum Classic's ETC token gaining 75% in the past 90 days.
Chainalysis Economist Ethan McMahon said he sees the miner selling as “a temporary shift” in moving away from Ethereum, “if miners’ initial reason for holding Ethereum was for the store-of-value or investment purposes.”