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Bitcoin Miners Selling Crypto at a Discount

Mine operators who have already paid two-thirds, or even 70 percent, of the price of these machines would not want to miss the last instalments, which makes them desperate for financing,

A plunge in the price of Bitcoins, rising energy costs, and increased competition have forced miners to tap into their cryptocurrency stashes. According to MacroHive, miners have been steadily liquidating their coins on crypto exchanges since June 7, a sign that "miners are increasingly liquidating their coins on exchanges."

An analysis by Arcane Research found that several publicly listed Bitcoin miners sold more than 100% of their output in May, as Bitcoin's value plummeted 45%. "Mining profitability declined sharply in May, forcing these companies to increase their sales to more than 100% of their output. The conditions likely worsened in June, so they may sell even more," said analyst Jaran Mellerud.

According to CoinMetrics data, Bitcoin miners collectively own about 800,000 Bitcoins and run networks of computers to validate transactions on the blockchain. Despite Bitcoin's surge in value in 2021, the crypto mining space has experienced rapid growth as a result, but as the number of miners increases, the process has become increasingly difficult.

According to Joe Burnett, an analyst at Bitcoin mining firm Blockware Solutions, over the past six months hash rates and mining difficulty have increased while Bitcoin prices have dropped, both of which have negatively impacted margins for existing miners. The Cambridge Bitcoin Electricity Consumption Index indicates that miners consume more electricity than the Philippines due to high electricity prices.

“If you're not at a very low-cost power area, you need to shut down,” said Chris Brendler, senior research analyst at D.A. Davidson. Companies such as Bitfarms, Riot Blockchain, and Core Scientific announced sales, with Bitfarms' CEO stating that, "We no longer handle daily Bitcoin production."

Compared to Bitcoin, the Valkyrie Bitcoin Miners ETF fell 59% this quarter, as publicly-traded miners were even harder hit. Bitfarms, among others, use the proceeds from their mining operations to negotiate financing agreements and pay for expensive mining equipment.

“Mine operators who have already paid two-thirds, or even 70 percent, of the price of these machines would not want to miss the last instalments, which makes them desperate for financing,” Brendler said. Given their significant Bitcoin holdings some analysts point to miner sales as another factor weighing on Bitcoin prices.

Those using older and more energy-intensive machines, and without the balance sheet or funding access of publicly listed players, are already struggling. Data from Glassnode showed that Bitcoin's mining difficulty declined by 2.35% this week, suggesting that miners turned off their equipment after the difficulty decreased.

Those who are still mining can breathe a sigh of relief. "Bitcoin mining is a zero-sum game. Suppose you can keep running when others can't. In that case, you have a greater share of the pie," says Charlie Schumacher, spokesperson for Marathon Digital Holdings Inc., the largest publicly listed miner.

“Marathon will stop selling Bitcoin in October 2020,” he said. "Bitcoin bottoms have been marked at the end of miner capitulation, which might indicate that miners who can overcome this capitulation have a way out," Burnett said.

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