Increasing energy costs, plunging prices in the crypto market and more competition in the market is biting into the profitability of bitcoin miners, leaving them with no other option than to tap into their crypto holdings.
Miners sell their holdings
According to researchers, there has been a steady increase in the number of coins that are being sent on crypto exchanges by miners since June 7th. This indicates that many miners have decided to liquidate their crypto holdings on the exchanges. With the price of Bitcoin plunging by 45%, a number of bitcoin miners that are publicly listed decided to collectively sell 100% of the entire output they had generated in May.
Market analysts said that the bitcoin miners were forced to sell off 100% of their holdings in May because their profitability had plummeted. It is likely that the numbers have gotten worse in June because prices have declined even further.
Miners are usually HODLers
The reason this move is considered different is that bitcoin miners, who operate an entire network of computers for validating blockchain transactions in order to earn tokens, are usually HODLers. They are staunch HODLers of cryptocurrencies, which means that they hold onto the coins they mine and do not sell. The data from CoinMetrics shows that there are 800,000 bitcoins that are collectively owned by these miners.
Last year, the bitcoin mining space experienced a significant amount of growth. This was because the price of Bitcoin almost quadrupled, but margins have come under pressure due to this growth. This is because when the number of miners grows, so does the difficulty of the mining process. The last six months have seen mining difficulty and hash rate increase, but the price of bitcoin has plunged.
This is not good news for bitcoin miners because both of these factors put pressure on margins. In addition, miners are also suffering from high energy prices. Analysts said that those that are not operating in low electricity cost areas have to essentially shut down.
Prominent companies are selling
Sales were announced by some prominent companies in the crypto mining sector, including Core Scientific, Riot Blockchain and Bitfarms. The chief executive officer of Bitfarms said that they were no longer HODLing their daily output. Publicly listed miners have seen their shares take a worse beating than bitcoin itself.
There was a 59% fall in the Valkyrie Bitcoin Miners ETF in the quarter, while bitcoin had dropped by 53% in the same period. Some companies, such as Bitfarms, are using the proceeds from their sales for negotiating financing agreements that can be used for funding operations and to pay for the expensive mining equipment they have bought.
Analysts said that the companies had become desperate for financing because they have already made two-thirds, or even 70% of the price of these machines, so they do not want to miss out their final payments. Some analysts also pointed out that bitcoin prices could also be weighed down because of the sale of significant bitcoin holdings by these miners.