Are Miners Driving Down the Price of Bitcoin?

Are Miners Driving Down the Price of Bitcoin?

When the Bitcoin price enters a prolonged downtrend, as it has since its record-breaking at the end of 2021, investors of all types begin to point to what appears to be the most likely culprit for the sell-off. Are whales manipulating the market? Paper fifty norms throwing their bags? Are Wall Street suits suppressing the price? However, nothing strikes fear into the hearts of the Twitter masses: like the phrase “miners are selling.”

And it’s true: miners sell, but this is no reason to panic.

This article explains some of the nuances behind historical miner selling habits, examines recent bitcoin sale announcements by miners, and reviews why it is a natural and healthy market dynamic for miners to sell their coins.

Which Miners Are Selling Their Bitcoins?

Several high-profile mining companies have posted announcements or made comments on their recent sales activity during their earnings calls. Riot Blockchain sold 250 BTC to raise approximately $10 million in cash in April. Core Scientific said it sold some coins to investors throughout the year and that “we should expect it to continue like this.” Marathon Digital also said it is willing to sell some coins to investors “as needed for treasury management”. Cathedra sold 235 BTC in May as part of recent measures to “reduce its risk and strengthen its balance sheet.”

On-chain analysis of bitcoin held by mining organizations also shows a slight decline in holdings. According to data from Coin Metrics, coins stored at addresses from mining establishments (i.e. usually anyone with an address and receiving payments from a mining pool) have increased by 2% from 2.6 million BTC to 2.54 million BTC since January. ,5 fell. The supply held by zero-jump addresses fell 0.1% to 1.79 million BTC over the same period per source.

Why Are Bitcoin Miners Selling?

The reasons for the treasury management decisions taken by any mining company can be very diverse. But at a fundamental level, when a coin has a lower dollar value, miners may need to sell a few more coins to cover the same operating expenses. And while the hash price – a measure of revenue per hash rate – has been falling steadily, some miners may be selling a few extra coins to supplement their rainy day funds.

However, self-preservation is wildly different from falling. Miners are still discovering new blocks every 10 minutes. About 900 BTC is still mined every day. Miners are doing their job. Selling a few extra tokens so they can continue to perform these tasks should not be seen as a cause for hysteria, but should be welcomed.

Who Cares If Bitcoin Miners Are Selling?

Recent sales by miners are only newsworthy because the market is discontented and prices are falling. The truth is that miners are always selling bitcoin, regardless of market conditions. Holding every mined coin is only a realistic option for miners who have external sources of income to finance their operations, such as a salaried home miner or a large corporate miner taking out a loan. For example, long-time bitcoin miner Kevin Zhang, told Twitter In the early years of his mining career, when his team will sell 2,000 BTC per month to cover their electricity costs.

However, especially in the current landscape with liquid markets and sophisticated traders, the impact of the miner sale on the market is grossly negligible. At current prices, the average daily number of newly issued cryptocurrencies (900 BTC) is approximately $27 million. According to data from Kraken’s Cryptowatch, Bitcoin’s 24-hour trading volume was over $11 billion at the time of writing. Assuming that miners sell each new coin on the market on a given day, the amount represents only 0.25% of the total bitcoin trading volume for a single day – absolutely no one notices.

In fact, market data shows that no one notices. For example, in early 2021, when a relatively significant reduction in miner holds was detected in on-chain data, the price of bitcoin was only immortality reaction. He saw a strong rally. In short, miners have almost no influence on the market. This fact makes more sense compared to the gold market, where miners typically liquidate everything they mine. Still, global markets for yellow metal have survived and even flourished for thousands of years.

Don’t Worry About Miners Selling Bitcoin

The shifts in the bitcoin market cycle become apparent when everyone focuses on miners selling bitcoin versus miners buying bitcoin. For example, in January 2021, Marathon Digital made headlines for buying $150 million worth of bitcoin off the market in addition to the coins their facilities are mining. Argo Blockchain also sold some of its cash for bitcoin.

Consider what the bitcoin economy would be like if miners never sold, this seems like a scenario many bitcoin investors would love. There would be no Bitcoin economy. No one except miners can own Bitcoin and no one except mining can access Bitcoin – and even after mining the coins cannot be spent on anything.

With a lower price and marginally worse mining economy, everyone panics when a headline says that miners are selling some coins. But bitcoin miners are the ultimate bulls who consistently sit through one of the most heavily leveraged, long bitcoin transactions on the market. Some sales by miners are necessary, healthy, and there is absolutely no reason to panic.

This is a guest post by Zack Voell. The opinions expressed are their own and are not their own and BTC Inc. or Bitcoin Magazine.

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