You have to have a strong heart as the turbulence that started in early November 2021 is shaking the cryptosphere, after the ATH of bitcoin. After the waltz-hesitation, then the prosperous period of confinement, the war in Ukraine seems to be reshuffling the cards of the crypto world.
As proof, the surge in donations in crypto and NFTs to Ukraine. A craze that bypasses the global fiduciary system and therefore acts very concretely on an IRL situation. And most recently, bitcoins held by miners are at their lowest for 10 years! What can we say about it?
- Miners ‘ bitcoin holdings are at an all-time low
- The pressure on the miners is very strong
- Several factors explain why miners sell their bitcoins
Bitcoin Miners Are Selling Their BTC!
Indeed, detentions of miners are currently at their lowest, but let’s go back a bit.
During January/February, the hodl level was high and fairly constant. Miners and whales (very large holders of cryptocurrency) gave an index of confidence, but above all a lever for a short-term recovery.
The mechanical effect at play is as follows: a high conservation rate causes a supply shock, and therefore upward trading in the short term.
Let’s try to understand this effect. The more large carriers keep bitcoins in their wallets without using them, the more the quantity in circulation for other carriers decreases. Over a short period, the demand remains the same while the available quantity is less. The demand is higher and therefore the prices go up.
But then, why does it not last? Simply because, for €100 for example, I buy less bitcoin than before. Demand is falling, prices too.
It is all the more rapid as the increase has been strong, and this is called a correction.
A Change Of Position
Back to today. The situation obviously changed around March 7th. According to IntoTheBlock (tweet of March 11), miners are liquidating their $BTC in order to maintain production, and thus eroding their margins as the hash rate reaches record highs.
#Amount of $BTC held by miners hits 10-year low – Bitcoin hash rate near all-time highs – These pressures on miners’ margins are causing them to sell some of their holdings for cover operational expenses.
The Bitcoin ecosystem is evolving and growing, and the role of miners seems to be inexorably diminishing.
If we rely on the HODLing indicator alone, the holding of miners has been steadily decreasing since 2019, with a fairly jagged but easily identifiable curve around November 2019.
Let’s analyze this roughly. In October 2019, the retention of miners unscrews towards 2.4 million $BTC. Another support breaks around February 2019, without finding any real resistance until August 2021 when the retention rate drops sharply below $2 million BTC. After an attempt to return to the support of 2.1 million around October 2021, poorly stabilized, retention is now at its lowest, at 1.95 million BTC held by miners.
But this factor alone does not fully explain why miners need to sell their bitcoins to keep their operations afloat.
Here are a few selected pieces that give some clues: the repression of Chinese mining, the worldwide shortage of electronic chips, the fierce competition from miners, the thundering announcements of regulation.
Of course there are other, more subtle factors, but these are already quite enough to shake up an already ultra-dynamic environment.
Concretely, What Pushes A Miner To Sell His Bitcoins?
A miner, generally, keeps a significant part of his bitcoins. His hope is of course the appreciation of the token to obtain a capital gain. A miner will sell his bitcoins when the profitability drops to a certain threshold. If profitability drops, the appreciation of the token no longer offsets the fees and the miner must sell to keep their system afloat.
But why is profitability falling?
A significant example is the level of difficulty encountered by the mining process, which is encountered in an increasingly tense competitive environment. The price of electricity also comes into play.
Some miners are therefore forced to sell more bitcoins than they produce. The risk is that the difficulty doesn’t drop fast enough, before they can buy back more powerful machines. In 2018, 800,000 miners were disconnected, also causing a weakening of the network by a reduction in security.
Yes, the role of $BTC miners in the distribution of tokens is becoming less and less important. Despite everything, they remain an essential part of the Bitcoin blockchain. Their number guarantees the security of the entire blockchain. So as long as the mining remains profitable, the sustainability of the network will be ensured.
In these troubled times, will miners find the resources to continue?