Bitcoin miners are selling their bitcoin reserves to fill the gap between falling revenue and rising production costs. How are bitcoin miners enduring the bear market?
At the market peak in November 2021, bitcoin miners were being rewarded $68,000 for each coin (BTC) they produced, but the price has fallen to around $30,000.
Bitcoin to US Dollar
Miner revenue is down 56% from its all-time high, according to on-chain data from on-chain analytics firm Glassnode, and companies are selling their BTC to compensate.
Canada’s Riot Blockchain (RIOT) — which brought in $213.2 million in 2021 — a whopping 1,665% year-on-year increase — had to liquidate its BTC position last month.
Meanwhile, Bitfarms (BFIT) scaled its growth plans and Stronghold Digital (SDIG) missed its 2022 revenue estimates.
Depletion of BTC reserves
Bitcoin miners are proverbial HODLers and have kept their hands “diamond” during bear markets.
But not anymore. Miner balances are now declining and miners are selling more BTC than they are adding, data from Glassnode shows.
“Since 2019, we’ve mostly seen miners topping up their balance,” Glassnode analyst Checkmate says in a recent video update.
LUNA crashes to earth
After the LUNA sell-off, there was a net payout of up to 6,000 BTC, according to Glassnode figures.
“[Miners] essentially have to sell their accumulated reserves to cover their costs because their earnings aren’t offering what they used to.
“They have to sell more to get back the same US dollar value or fiat value, depending on where they are located,” says Checkmatehe.
The bitcoin mining sector may be in worse shape than the cryptocurrency market itself, says Stifel analyst Suthan Sukumar, who says miners will face tough market conditions.
“Challenges from supply chain uncertainty, more difficult access to capital and rising electricity costs are a key emerging issue for public crypto miners.”
“Hard road ahead” for BTC miners
Sukumar points out that SDIG and BITF are cutting their full-year targets and says it is an indication of a difficult path ahead for miners.
“Looking ahead, market volatility and risk-off sentiment persist, with our names down nearly double that of Bitcoin itself year-to-date,” he added.
While talk of a crypto winter may be premature, some tokens, like Solana, have suffered a major pullback from their all-time highs set in 2022.
SOL in US dollars
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According to Checkmate, given the sector’s cyclicality, expect miners to dump their holdings during a downturn.
“In the past, miners invested more capital [during bull marketsmarket]; They buy more hardware, more facilities and logistics,” says the analyst.
“The challenge is that once the equipment turns on, the difficulty increases, and with it the cost of production – it’s harder to mine every single bitcoin.
Majority of BTC already mined
With over 19 million of Bitcoin’s hard cap of 21 million tokens already being tracked, Checkmate says future market conditions will be challenging for miners.
“The Bitcoin protocol will continue to change difficulty so we cannot. So it will keep making the puzzle harder and harder and harder.
“Even as miners spend more money on their new hardware and new energy, they have new operations and new capital costs.
“So miners typically invest at the end of the cycle and then have to weather the bear market with rising costs but falling revenues.”
Mining economy “stay healthy”
Sukumar says that despite the current mood in the industry, things can improve and mining BTC at current prices still makes economic sense – he estimates the breakeven cost for miners to be between $5,000 and $15,000:
BTC mining is notoriously energy intensive and despite the war in Ukraine pushing up global oil and gas prices – and with them energy costs, they would have to go much higher to threaten miners’ margins at Bitcoin’s current price .
“We see well-capitalized miners as well-positioned to implement existing growth plans.
Our top picks remain HUT and HIVE,” says Sukumar.