Crypto

Bitcoin Struggles to Recover as Miner Capitulation Continues

key takeaways

  • Multiple reports indicate that Bitcoin miners are selling more coins to cover the cost of their operations.
  • Miners have sold an estimated $500 million worth of Bitcoin so far in June, reducing their holdings by almost a third.
  • The forced sale could stifle any significant recovery for the leading crypto asset.

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According to a recent report from Coin Metrics, miners have sold at least $500 million worth of Bitcoin so far in June.

Bitcoin miners sell reserves

The once-booming Bitcoin mining industry has become its own worst enemy.

Multiple reports indicate that Bitcoin miners are selling more coins to cover the cost of their operations. The surge in sales is weighing on any potential recovery for Bitcoin, leading to more selling as miner profitability continues to sink below the cost of production.

A recent report from Arcane Research has revealed a significant increase in the amount of Bitcoin leaving miners’ wallets. “In the first four months of 2022, public mining companies sold 30% of their bitcoin production. The plummeting profitability of mining forced these miners to increase their rate of sale to more than 100% of their production in May,” the report reads, stating that operating costs exceeded miners’ profits. , forcing them to dip into their Bitcoin savings to make up the difference.

Elsewhere, leading Bitcoin miner Bitfarms became the latest in a long line of companies to increase sales amid the unprecedented slump in cryptocurrencies. Bitfarms reported selling 3,000 Bitcoin for $62 million over the past week in a bid to increase its liquidity.

A recent Coin Metrics report also highlighted the current trend of miner capitulation. The crypto analytics firm estimates that miners have sold at least $500 million worth of Bitcoin so far in June, reducing their holdings by almost a third.

BTC supply held by miners. Source: Coin Metrics

Bitcoin Hash Ribbons, an indicator that measures the network’s 30-day and 60-day hash rate moving averages, has also recently gone capitulated. This indicates that miners are shutting down their machines as it starts to cost more to run than they can get back with block rewards.

When the Bitcoin hash rate decreases, the network is programmed to reduce the mining difficulty. However, as difficulty adjustments can only occur roughly every two weeks, it may take some time before the network can get back into balance with miners. The last adjustment took place on June 22 and decreased the difficulty by -2.35%.

At the same time, the forced sale of mining companies could stifle any significant recovery of the leading crypto asset. When the price of Bitcoin falls below its average cost of production of around $30,000 per BTC, miners will continue to sell their reserves to stay afloat. This could force miners to sell more Bitcoin to cover their costs, suppressing its price, preventing a rally, and trapping them in a vicious cycle of selling.

Bitcoin is likely to need a significant bullish catalyst to break free of its current depressed price range. Until then, miners will have to wait and hope that they can stay solvent long enough for a recovery to take place.

Disclosure: At the time of writing, the author owned ETH and several other cryptocurrencies.

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