Falling prices cause profitability for miners to decline. As a result, they are starting to send their bitcoin to exchanges to sell on the open market.
Miners send bitcoin to exchanges
The inflow of bitcoin on exchanges from wallets associated with mining companies reached the highest point in May since January this year.
“It could be that miners gehodl’de bitcoin are starting to sell,” Compass Mining writes in a research report about this. “At the very least, they are feeling the pain of the most recent large price drop. Add this to the downward revision of difficulty-a sign that mining equipment is being turned off-and it seems that miners are running up against the limits of profitability.”
Some of us in the #bitcoin Industry, and especially the miners, don't distinguish a good time to buy or sell.
We just have bills that we must pay with bitcoin.— MyBrainHz (@Badbitcoinorg) February 12, 2020
Mining bitcoin becomes less profitable when the price at which you record the earned bitcoins goes down. Under current market conditions, mining with common miners, such as Bitmain’s Antminer S9, can work out at a power price of 6 cents per kilowatt hour. Mining companies that are above that and still want to keep mining without selling have to look for funding.
Selling to pay the bills
Argo Blockchain plans to sell some of its mined bitcoin and cover the rest of its losses with borrowed money. The largest miner in terms of hashrate, Core Scientific, is already covering costs by selling bitcoin and will continue to do so. The same is true for Riot, they sold half of their mined bitcoin in April and a good portion in March as well.
When margins shrink, a mining company also has less of a buffer to cope with disruptions to its business processes. Cathedra Bitcoin sold 235 bitcoin in May to improve the company’s liquidity and to be more resilient to continued low prices. In April, the company was also struggling. Only 45% of its computing power was available on average, due to storms in North Dakota, where some of its miners are located.
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Ivan Brightly is a leading cryptocurrency analyst and author with over 5 years of experience in the blockchain and digital asset space. He previously served as a senior analyst at a major cryptocurrency hedge fund where he led quantitative research and trading strategy development.
Ivan holds a Master's degree in Finance from the London School of Economics and a Bachelor's in Computer Science from Stanford University. He is frequently invited to speak at fintech and blockchain conferences worldwide on topics spanning cryptocurrency trading, blockchain technology, and the future of digital assets.
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