- Bitcoin miners are traditionally “hodlers” who only sell the cryptocurrency when needed, but persistently low prices and leveraged miners are being pressured to sell to make ends meet.
- High equipment and energy costs, coupled with leverage means that any rally in the benchmark cryptocurrency is likely to be short lived as miners are under pressure to generate revenue to keep up with costs.
Like the canary in the coal mine, Bitcoin miners, which are net “hodlers” of Bitcoin, have turned sellers, as they struggle with rising costs of energy, to keep operations afloat.
A persistent downturn in the cryptocurrency markets is ratcheting up the weight of a US$4 billion loan burden on Bitcoin miners who borrowed money to buy mining equipment.
With an increasing number of loans to Bitcoin miners now coming under strain, that stress and risk of default is spilling over to cryptocurrency lenders at the worst possible time.
Over the past several weeks, some of the biggest names in the crypto lending business, including Celsius Network, BlockFi and Babel Finance have either halted withdrawals or displayed stress at risk of insolvency.
Making matters worse, one of the largest cryptocurrency funds, Three Arrows Capital, is believed to be insolvent, and speaking with legal and financial advisors.
Three Arrows Capital is known to have borrowed heavily from a wide range of crypto lenders and if the fund is in default, could jeopardize the solvency of these companies, at a time when Bitcoin miners are also under stress from persistently low prices.
Pressure to sell Bitcoin from miners, to make ends meet, would mean that any rally in the benchmark cryptocurrency is likely to be short lived.
Listed cryptocurrency miners have already declared their Bitcoin sales for May and June to meet costs, raise liquidity, and to possibly deleverage.
And until such time that Bitcoin prices durably improve, miners are likely to err on the side of caution in favor of longevity over capital gains.
Meanwhile, privately held Bitcoin miners have sold large portions of their mining gains, as demonstrated from blockchain flows, to ensure sufficient funds to cover overheads, given their more restricted access to the capital markets.
Bitcoin has fallen by over 50% year-to-date amidst the hawkishness of the U.S. Federal Reserve’s interest rate hikes and its alleged role as a hedge against inflationary pressure has so far failed to materialize.
