Miners now hold 27% less Bitcoin than they usually would have since they began the sell-off in May 2022, according to new data from Arcane Research. According to the chart, the amount sold by the public miners, reveals that they sold more than 100% of what they produced in May, nearly 400% in June and in July, although lower than in June. The miners still sold 158% of their bitcoin production, making it the third consecutive month in a row where they sold more than 100% of their production.
Recall that Nairametrics previously reported a research report from Arcane Research, which explained that falling prices of cryptocurrency assets forced Bitcoin miners (people with the computing power that can solve the computational problem required to validate a block of Bitcoin transactions) to begin selling their position. The report estimated that public BTC miners sold 4,456 BTC in May, 14,600 BTC in June and 6,200 BTC in July.
This is a massive increase from the usual 25-40%, which has been the threshold in the first four months of the year. This massive leap shows that the deteriorating profitability of mining, caused by the price drops seen, has forced the public miners to start liquidating their bitcoin holdings. However, Arcane research outlined two major reasons why miners are selling their holdings;
Why miners are selling Bitcoin
Although we are seeing an ease when it comes to public miners selling, as they sold less than half the amount in July as in June, Arcane Research explained that the miners are still selling their holdings looking at the percentage of the bitcoin production sold. The report explained two main reasons why miners have been dumping their bitcoin holdings;
The first reason was the need for public bitcoin miners to fund their expansion plans in a bid to de-risk. The report stated, “public miners have significant upcoming expenses related to their massive expansion plans. There are three ways miners can fund capital expenditures: equity, debt, or internal capital. Historically the public miners have preferred to hoard internal capital in the form of bitcoin and instead raised equity or debt to fund growth. With capital markets drying up, miners are now forced to rely increasingly on internal capital. The public miners’ expansion plans go several months into the future, and they are selling some bitcoin now to get their bank accounts ready for future dollar-denominated payments.”
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The second reason mentioned by the report stated that the public miners are trying to avoid liquidation on bitcoin or machine collateralized debt, which would force them to sell. It stated, “Miners with significant BTC or machine collateralized debt positions were forced to sell BTC to avoid margin calls. The miners with the largest positions of such precarious debt were Core Scientific and Bitfarms, which sold 9,903 and 3,353 BTC in May and June.”
Why this is important
The behaviour of public miners and miners, in general, is a good indication as to understanding if there are buyers or sellers in the market. As mentioned in the report, considering that public miners are selling their holding to fund their expansion plans, it means that Venture Capital organizations, private equity and other private and public funds are not looking to allocate funds in the cryptocurrency space at the moment. Recall that Nairametrics previously reported that venture capital investment in crypto has dropped by $3.2 billion in the first half of 2022, compared to H1 2021. This is a clear indication that the flow of funds is not going towards mining companies or the cryptocurrency industry at large.
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Another evidence of this is Prime Blockchain, a crypto miner, and 10X SPAC, mutually canceling a $1.25 billion merger deal. This cancellation means that Prime Blockchain will no longer list on the Nasdaq stock exchange following the cancellation of its $1.25 billion SPAC deal. Although the filing mentions that they mutually cancelled the deal, everyone in the cryptocurrency community can easily guess why this deal was cancelled as mining is becoming less and less profitable with Bitcoin’s price trading below $30,000 per token.
Also, to note, there is now a huge focus from institutional investors and the entire crypto space in fact, on Ethereum’s native token, Ether than on Bitcoin. This is because of an upcoming event called “The Merge,” where the Ethereum blockchain will move from a Proof-of-Work consensus mechanism to a Proof-of-Stake mechanism, in which Vitalik Buterin himself touted that he expects the Blockchain to have a transaction throughput of up to 100,000 TPS. This is evident as Nairametrics reported a seven-week inflow into Ether-based products by institutional investors, the rally of Ether’s price above $2,000 and Ether, surpassing Bitcoin in the options market for the first time ever.
What you should know
- The slow down in the sell of by Miners will be due to Bitcoin’s rally above $20,000 to trade as high as $25,000 before hitting a resistance. It looks like the 26% rally in the price of Bitcoin that happened in July gave the public miners some breathing room, and ultimately stopped the forced selling we saw in June.
- The report explained that some of the forced sellers from June spent that month restructuring their balance sheets. Core Scientific and Bitfarms were among the miners with the highest bitcoin and machine collateralized debt positions, but they both paid down significantly on these positions during June. These companies were the biggest bitcoin sellers in May and June, as they were forced to sell to avoid getting liquidated.
- The public miners are now collectively hodling 33,772 BTC, a 27% reduction from the all-time high in April this year. Until April, the miners HODLed between 60% and 80% of their mined BTC, but for the last three months, they have sold more than 100% of production.
- It is expected the selling pressure from the public miners will ease however not fall below 100% by our estimations. However, if we continue to see a significant rally, especially above $25,000, we could see a significant slowdown in the selling pressure from public miners and institutions as a whole.