Bitcoin miners have been forced to leverage their cryptocurrency stock as a plunge in prices, rising energy costs and increased competition are biting into profitability. The number of coins miners send to crypto exchanges has steadily risen since June 7, MacroHive researchers noted, in a sign that “miners are increasingly liquidating their coins on exchanges.”
Several publicly traded Bitcoin miners collectively sold more than 100 percent of their total output in May when Bitcoin’s value fell 45 percent, according to an analysis by Arcane Research.
“The plummeting profitability of mining forced these miners to increase their sales rate to more than 100 percent of their output in May. Conditions deteriorated in June, meaning they are likely to sell even more,” said Arcane analyst Jaran Mellerud. .
Bitcoin miners, who run networks of computers to earn tokens by validating transactions on the blockchain, are typically staunch crypto “HODLers” and collectively own about 800,000 Bitcoins, according to CoinMetrics data.
The crypto mining space expanded rapidly in 2021 when Bitcoin more than quadrupled in value, but this growth has further strained margins as the process is designed to be more difficult to grow as the number of miners increases.
“Over the past six months, hash rates and mining issues have increased while Bitcoin’s price has fallen. These are both negatives for existing miners, as both work to compress margins,” said Joe Burnett, an analyst at Bitcoin-enabled miners. mining company Blockware Solutions.
High energy prices also hit miners, who, by some estimates, consume more electricity than the Philippines, according to the Cambridge Bitcoin Electricity Consumption Index.
“If you’re not in a very cheap electricity area right now, you should stop,” said Chris Brendler, senior research analyst at DA Davidson.
Bitfarms, Riot Blockchain and Core Scientific are among the companies announcing sales, with the Bitfarms CEO saying the company is “no longer HODLing daily Bitcoin production”.
Shares of publicly traded miners are even more battered than Bitcoin, with the Valkyrie Bitcoin Miners ETF falling 59 percent this quarter, compared to 53 percent for Bitcoin.
Some miners, including Bitfarms, use the proceeds to negotiate financing agreements to fund operations and make payments for expensive mining equipment.
If miners have already paid two-thirds or even 70 percent of the price of these multimillion-dollar machines, they wouldn’t want to miss the final installments, leaving them desperate for funding, Brendler said.
Given their significant Bitcoin holdings, some analysts point to miner sales as another factor weighing on Bitcoin prices.
LIGHT AT THE END OF THE TUNNEL?
Miners using older and more energy-intensive machines, and without the balance sheet and access to funding from publicly traded players, are already struggling.
Bitcoin’s mining difficulty fell 2.35 percent this week, Glassnode data showed, indicating that the network had adapted after some miners shut down their installations.
This takes some pressure off those who haven’t given up.
“Bitcoin mining is a zero-sum game. If you can keep running when others can’t, that means you have a bigger slice of the pie,” said Charlie Schumacher, spokesperson for the largest publicly traded miner, Marathon Digital Holdings.
Marathon has not sold Bitcoin since October 2020, he added.
“Bitcoin bottoms are marked at the end of the miners’ capitulation, which could be a sign that the miners who can survive this capitulation have a light at the end of the tunnel,” Burnett said.
© Thomson Reuters 2022