Bitcoin struggles to rebound as miner capitulation continues
Key points to remember
- Several reports indicate that Bitcoin miners are selling more coins to cover the cost of their operations.
- Miners have sold roughly $500 million worth of Bitcoin so far in June, cutting their inventory by almost a third.
- The forced sale could stifle any meaningful recovery of the leading crypto asset.
Share this article
According to a recent Coin Metrics report, miners have sold at least $500 million worth of Bitcoin so far in June.
Bitcoin miners sell reserves
The once booming bitcoin mining industry has become its own worst enemy.
Several reports indicate that Bitcoin miners are selling more coins to cover the cost of their operations. The increase in sales weighs on any potential Bitcoin recovery, leading to increased sales as miner profitability continues to fall below the cost of production.
A recent report from Arcane Research revealed a significant increase in the amount of Bitcoin leaving miners’ wallets. “In the first four months of 2022, state-owned mining companies sold 30% of their bitcoin production. The plummeting profitability of mining forced these miners to increase their rate of sale to over 100% of their production in May,” the report read, stating that operational costs exceeded miners’ profits, forcing them to dip into their Bitcoin savings to make up the difference.
Elsewhere, leading Bitcoin miner Bitfarms has become the latest in a long list of firms to boost sales amid the crypto’s record low. Bitfarms said it sold 3,000 Bitcoin for $62 million over the past week in a bid to boost its liquidity.
A recent Coin Metrics report also highlighted the current trend of miner capitulation. The crypto-analytics firm estimates that miners have sold at least $500 million worth of Bitcoin so far in June, cutting their inventory by almost a third.
The Bitcoin Hash Ribbons, an indicator that measures the network’s 30- and 60-day hash rate moving averages, also recently moved into capitulation. This signals that miners are shutting down their machines as it starts to cost more to run them than they can earn with block rewards.
When the Bitcoin hash rate decreases, the network is programmed to reduce the mining difficulty. However, since difficulty adjustments can only occur approximately every two weeks, it may take some time before the network can break even with miners again. The last adjustment took place on June 22 and decreased the difficulty by -2.35%.
At the same time, the forced sale of mining companies could stifle any meaningful recovery of the leading crypto asset. When Bitcoin’s price is below its average production cost of around $30,000 per BTC, miners will continue to sell their reserves to stay afloat. This could force miners to sell more Bitcoin to cover their costs, suppressing its price, preventing a recovery, and trapping them in a vicious selling cycle.
Bitcoin will likely need a significant upside catalyst to break free from its current depressed price range. Until then, miners will have to wait and hope they can stay solvent long enough for a recovery to occur.
Disclosure: At the time of writing this article, the author owned ETH and several other cryptocurrencies.