BlogBitcoin Miners Are Selling Their Bitcoin But Why? You Must Know this

Bitcoin Miners Are Selling Their Bitcoin But Why? You Must Know this

Let’s start with miners I saw that miners are now starting to put out their June reports. A couple of bitcoin miners have reported that they’ve sold not just a little bit of the bitcoin on their balance sheet but quite a bit. Let’s take a look at what’s going on here and why exactly are they doing this?

The cyclicality of the bitcoin mining industry and this kind of hash price bowl and bear cycles. So you can think of hash price as its minor revenue divided by hash rate. So when price a good kind of basic gauge or kind of a mental framework to operate on. When the price is increasing faster than hash rate miners their valuations and their margins all increase. 

When the hash rate increases faster than the price or if the price is just decreasing and the hash rate steady or the hash rate you know the pain trade is hash rates increasing price is decreasing these minor margins really really get squeezed. The ASIC values and leads to some of this kind of force selling. We see it every single cycle and this cycle I think was even exacerbated by the fact that we have these new kinds of public markets. SO the financing around that so these miners like hud-8 a lot of these publicly traded firms.

We have a graphic up here this is the performance of all these publicly traded bitcoin miners since the all-time high of bitcoin. They’ve all underperformed bitcoin itself and there’s a reason for that. post-china minor ban a bunch of hash rates got wiped out a lot of these companies scooped up a ton of rigs and they did it with financing and did it with leverage. 

So now that the price of bitcoin has gone down. The cash rate has subsequently recovered meaning that the difficulty has adjusted upwards. For anyone that’s kind of not familiar with the term difficulty, bitcoin mining has this kind of it like this oscillator. It means that if more people will mine bitcoin more operations will turn on. It gets difficult to mine a block of bitcoin. So similarly if the hash rate goes down difficulty somehow adjusts downward to ease up a bit.

Related: Bitcoin hash rate drops to all-time low of 14%

As you know all that difficulty has just continued to ratchet up. It’s getting harder and harder to mine bitcoin and more costly rather at the same time the price is falling. So you’re seeing a lot of these operations start to puke up and cover their loans. That’s leading to just kind of cratering valuations and you know equity market performance.

So when we see this happening is this something that we’ll understand when it’s over and like we’ll be like okay like that’s probably they’ve sold everything that they’re going to sell is there like a percentage of their balance sheet. Is there some way to evaluate it in real-time and the thought process being with liquidations? We know of some because of on-chain analytics or we’re able to understand you know from past maybe company announcements. 

Now the question arises what is the general price point at which some of these liquidations will happen and also what is the size of it. Now we don’t understand all of them but these are publicly traded companies. So how do we evaluate how much bitcoin is there available for them to sell and how do we know when they’re kind of done selling or is it just all after the fact we’ll be able to understand that.

Yeah, so there is some pretty good data out there about kind of approximate break-even levels. A lot of these publicly traded bitcoin miners have they still have break-even prices below 10 000. But those numbers actually ratchet up as the hash rate continues to ratchet up and difficulty continues to increase. 

So my kind of base case is that we see a new all-time low in hash price right so that that minor revenue is divided by hash rate. Basically, the all-time history of you knows the trend in bitcoin is the hash price is going lower forever essentially. 

What you see are during these bull markets there are these kinds of these gold rush periods. Where price dramatically outperforms hash rate and it’s just it’s so hard to actually source and kind of engineer these new ASIC machines. Then getting them out and get them plugged into the infrastructure takes a lot of time. So there is a lag between kind of that bull market that golden period of profitability. You know where these bitcoin miners really get squeezed but you’ve seen it cycle after cycle. 

I think what you really know what to look for is you can monitor the hash rate. You can monitor the kind of moving averages or the rate of change of that hash rate. When you see a lot of that really starts to fall off. So that basically means that a lot of these bitcoin miners these operations are seeing kind of immense pressure. 

But the beauty of bitcoin is these machines don’t just turn off forever. They’re sold they’re liquidated the inefficient bitcoin miners have to sell their holdings. Then what happens if someone else with a cheaper power source has cheaper energy and you know better more well-capitalized. They scoop up the bitcoin miners plug them in and continue to hash and they also get the benefit of difficulty ratcheting down. 

Right soi think there is still a period ahead of us where these bitcoin miners are really gonna get squeezed. They’re gonna have to be selling a majority of their stack. There’s no longer a period where minor margins you know the profit margins were 80 or 90 percent in the bull market. Because of that, they had just absolutely tremendously outrageous valuations. That period is over and it’s kind of really just every man for themselves at this point. 

Some publicly traded bitcoin miners I believe probably won’t make it to the other side or they’ll be acquired. Some will continue to thrive they’ll continue to build and they’ll you know they’ll be tremendous performers during the next bull cycle. But I think you know that takes time.

When you take a look at something like hash price. What hash price is to everyone and then we can pull up this hash price percent from cycle low?

Yeah, so hash price it’s minor revenue daily minor revenue so we can see you know around approximately 900 bitcoin per day are mind. Then we can just multiply that out by the current price and then divided it by just the average hash rate. So using a daily hash rate isn’t really useful because it’s there’s so much variance. But just say you know take a seven-day moving average of hash rate it’s a pretty reliable indicator of what that rate is.

Because of that, we can come up with a hash price for this kind of calculation. It’s a rough estimate and obviously every minor is different but this is basically kind of showing you minor profitability. Hash prices are basically going down forever in a tremendous fashion it’s almost like the opposite or inverse of a bitcoin chart.

As hash breaks, contin as hash rate continues to just increase and that block subsidy continues to get cut right. First, there was 50 bitcoin mined every block than 25 then 12 and a half. In May of 2020 that went to 6.25. Somewhere in 2024, that’ll go to 3.125. Now obviously there’s a variable amount of fees that are being paid to compensate bitcoin miners as well. 

Read: Bitcoin miner Mawson stop mining until market conditions stabilize

If we look at the hash price kind of increase from its all-time low during bull markets. This is kind of that gold rush visualized. Right so any bitcoin miners any capitalized bitcoin miners that make it through the bear they rough it out they’re barely profitable they squeak by. But they’re still hashing. During that next bull cycle that’s where they kind of you know, that’s where you reap the rewards. Now we’re kind of in one of those periods where the hash price is just flirting with an all-time low. It’s an all-time low of around 7 cents per tera hash. Right now it’s about $8.6 cents per tara hash. So we’re going to see another low it’s going to get even kind of squeezier for these bitcoin miners and their margins and the strong will survive but the weak you know probably get wiped.

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