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Bitcoin Miner Liquidations Threaten Bitcoin’s Recovery

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The profitability of bitcoin mining is falling along with the fall of the market. The cash flow from mining rigs becomes increasingly slow over time, causing bitcoin miners to start selling their assets to cover the costs of their operations. But even while this is raging, there is a bigger issue that could threaten the recovery that BTC has made so far, namely the fact that larger miners may be forced to liquidate their holdings.

Bitcoin miners can’t meet

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Generally, bitcoin miners are known for holding onto the coins they receive from their activities. Since miners do not buy coins at all, this makes them natural net sellers of bitcoins. However, due to their tendency to hold onto these coins, they often had to dump their bags on the suffering markets. So, instead of actually selling during a bull run, they tend to hold on until the bull market ends and, when profitability declines in a bear market, are forced to sell coins to fund their operations.

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The same scenario is now playing out in the market. With bitcoin down over 70% from its all-time high, miners are nowhere near the level of profitability they were in November 2021. In the first four months of 2022, public mining companies reportedly had to offload about 30% of their BTC to be generated from mining. This meant that the miners had to sell more BTC than they produced in the month of May.

Given that the market in May was significantly better than in June, it is expected that miners will have to increase sales. This will likely result in miners selling all of their monthly BTC mining along with the BTC they already held until 2022.

Bitcoin miners

BTC miners selling off holdings | Source: Arcane Research

The aftermath of the sell-off

It is important to note that bitcoin miners are among the largest bitcoin whales in the space. This means that their holdings could become the main mover of the market while being dumped. These miners collectively own up to 800,000 BTC, with public miners holding just 46,000 BTC of that number.

This means that if bitcoin miners are stymied, triggering a massive selloff, the price of the digital asset will have a hard time resisting it. The massive selling pressure that this will create will push the price even lower, which is likely to be the event that causes it to hit its eventual bottom.

Bitcoin price chart from TradingView.com

Declining prices forcing miners to selling BTC | Source: BTCUSD on TradingView.com

The behavior of public miners can often help indicate whether a massive sale is imminent. These public companies only account for about 20% of all bitcoin mining hashrate, but if they are forced to sell, then it is likely that private miners are forced to sell.

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A short-term recovery in bitcoin could push back this sell-off. However, this will only be a short respite as energy costs are constant and some machines, namely the Antminer S9, have now gone negative. To survive in a bear market, miners would simply have no choice but to dump some BTC to ride out the storm.

Featured image from Newsweek, charts from Arcane Research and TradingView.com

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Credit : www.newsbtc.com

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