Bitcoin Miner Liquidation Threatens Bitcoin’s Recovery

Bitcoin mining profitability has been declining as the market has fallen. Over time, cash flow from mining rigs has become increasingly obstructed, causing Bitcoin miners to start selling their holdings to cover their operating costs. But even as this continues to spread, there is a bigger problem that could threaten the recovery BTC has achieved so far, and that is the possibility that large miners may be forced to liquidate their holdings.

Bitcoin miners can’t meet

Typically, Bitcoin miners are known for holding the coins they earn from their activities. Since miners don’t buy coins in the first place, this makes them natural net sellers of Bitcoin. However, their propensity to hold these tokens often results in them having to unload their luggage into painful markets. So, instead of actually selling in a bull market, they tend to hold until the bull market ends and in a bear market, profitability declines, and are forced to sell tokens to fund their operations.

Related reading | Bitcoin recovery disappears from Celsius liquidation, but how long will it last?

The same is true in the current market. With Bitcoin down more than 70% from its all-time high, miners are far less profitable than they were in November 2021. According to reports, in the first four months of 2022, public mining companies have had to reduce their holdings of about 30% of their BTC must come from mining. This means that miners have to sell more BTC than they produced in May.

Given that the market in May was significantly better than in June, miners are expected to have to increase their sales efforts. This could result in miners selling all their BTC offerings for the month along with the BTC they already hold by 2022.

BTC miners selling off holdings | Source: Arcane Research

The impact of the sell-off

Notably, Bitcoin miners are among the largest Bitcoin whales in the space. That means their holdings have the potential to be major market movers when they sell off at the same time. In total, these miners hold 800,000 BTC, while public miners only account for 46,000 BTC.

This means that if Bitcoin miners are pushed to the wall that triggers a massive sell-off, it will be difficult for the price of the digital asset to compete with it. The massive sell-side pressure it will generate will push the price down further and is likely to be the event where it finally bottoms out.

Bitcoin Price Chart by TradingView.com

Declining prices forcing miners to selling BTC | Source: BTCUSD on TradingView.com

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

Related reading | Gold proves to be a safe-haven asset in Bitcoin crash

A short-term recovery in Bitcoin could fuel this sell-off. However, this will only be a temporary relief as energy costs are constant and some machines, the Antminer S9, have now turned negative cash flow. To survive in a bear market, miners have no choice but to dump some BTC to get through it.

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

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