Liquidations of Bitcoin Miners Threaten Bitcoin’s Recovery


Bitcoin mining profitability has fallen along with the market decline. The cash flow of the mining rigs has been decreasing over time, causing bitcoin miners to start selling their holdings to cover the costs of their operations. But even as this continues, there is a bigger problem that could jeopardize the recovery BTC has made so far, which is the fact that larger miners could be forced to liquidate their holdings.

Bitcoin miners can’t meet

Usually, bitcoin miners are known for holding onto the coins they extract from their operations. Since miners don’t buy the coins in the first place, they are the natural net sellers of bitcoin. However, their propensity to hold onto these coins has often resulted in them having to unload their cases in suffering markets. So instead of actually selling in a bull market they tend to hold until the bull market is over and with profitability lower in a bear market they are forced to sell coins to fund their operations .

Related literature | Bitcoin Recovery Wades Celsius Liquidation, But For How Long?

The same is the scenario currently playing out in the market. With bitcoin more than 70% lower than its all-time high, miners are not nearly as profitable as they were in November 2021. In the first four months of 2022, it was reported that public mining companies must mine about 30% of their BTC. This meant that the miners had to sell more BTC than they produced in the month of May.

As the May market was significantly better than June, miners are expected to have to ramp up sales. This would likely make miners sell all of their BTC production for the month in addition to the BTC they already had before 2022.

BTC miners sell their holdings | Source: mysterious investigation

Implications of a Sale

It is important to note that bitcoin miners are some of the largest bitcoin whales in the space. This means that their property has the potential to be a major market mover when dumped at the same time. These miners together have about 800,000 BTC, while public miners only account for 46,000 BTC of that number.

What this means is that if bitcoin miners are pushed to the wall where it triggers a massive sell-off, the price of the digital asset would have a hard time holding it back. The massive sell-side pressure it would create would push the price further down, likely the event that would cause it to bottom out.

Falling prices force miners to sell BTC | Source: BTCUSD on TradingView.com

The behavior of the public miners can often indicate whether a massive sell-off is imminent. These public companies only account for about 20% of all bitcoin mining hashrate, but if they are forced to sell, it is likely that private miners will be forced to sell.

Related literature | Gold Proves Safe Haven Amid Bitcoin Crash

Bitcoin’s short-term recovery could push back this sell-off. However, it will only be short-lived as energy costs are constant and some machines, namely the Antminer S9, have now turned cash flow negative. To survive the bear market, miners would simply have no choice but to dump some BTC to weather the storm.

Featured image from Newsweek, charts from Arcane Research and TradingView.com

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