Bitcoin Miners Are No Longer HODLing: What It Means for Crypto

Bitcoin miners are selling their stashes for the first time since 2018. This is what it means for the crypto market.

Tom Blackstone Crypto Expert Tom Blackstone, Cryptocurrency Expert
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Bitcoin miners have invested thousands of dollars into state-of-the-art ASIC mining computers that can spit out trillions of hashes per second. Since they’re willing to put this kind of investment into mining it, you would think they’d be pretty bullish on bitcoin, right?

But what if I told you that bitcoin miners are now selling their stashes, flooding the market with bitcoins and helping to crash the price?

That’s exactly what a set of reports from Arcane Research and Macro Hive have recently revealed. What is going on, and what does it mean for the crypto market?

Does it signal the end of the crypto market, or just a phase that will pass?

In this article, I’ll go over the new evidence that bitcoin miners are, in fact, dumping bitcoins on the market, and I’ll give some explanations for why this strange phenomenon is happening and what it means for the crypto market.

Here’s the tl;dr version: It’s normal for bitcoin miners to dump their coins during a crypto winter. It’s part of a repeating four-year pattern that has been happening since crypto began. There are some interesting nuances, however, so keep reading for more detail on why it’s happening.

Bitcoin Miners Are No Longer HODLing

“Miners Have Started to Dump Their Bitcoin Holdings.”1 That’s the headline of the new report from Arcane Research. The researchers studied the financial reports of publicly traded bitcoin mining companies such as Core Scientific, Marathon, and MicroStrategy and found that the companies have accelerated their sales of bitcoin in the past few months, exacerbating the bitcoin bear market.

From January to April 2022, these large mining firms sold less than 40 percent of the bitcoin they mined each month. In May, however, they sold more than 100 percent of what they mined.

research image
Source: Arcane Research

In other words, these firms sold every single bitcoin they mined in May. Then they sold even more, dipping into the stash of coins they held on their balance sheets. This is in stark contrast to these firms’ normal operating procedure.

Under normal circumstances, publicly traded bitcoin miners accumulate bitcoin over time. That allows their stock prices to correlate with bitcoin, which is exactly what their investors want. But now they are selling their bitcoins. According to Arcane, it may be because the miners are being forced to sell to cover operating losses.

FYI: The biggest cost to bitcoin mining is solving the “hash problem,” a mathematical problem created to prevent spam and stop anyone from being able to spend their bitcoins twice. You can find out more about hash problems and other aspects of bitcoin mining in my guide to crypto mining.

There is one important caveat to this conclusion though: It applies only to publicly traded bitcoin miners. Private miners were not included in the study, and it may have skewed the result to make it look like the selling is worse than it actually is.

As Arcane explains: “The public miners only make up around 20 percent of bitcoin’s hashrate, but studying their behavior can hint at what the private miners are doing. Public miners likely sell a larger portion of their mined bitcoin now since they could keep a larger share of their production during the bull market by tapping into financial markets, which was more difficult for private miners.”

According to this report, the selling may not be as bad as it appears. The publicly traded miners make up only about 20 percent of the total number of miners, so maybe the other 80 percent are not selling.

But then there’s the issue of exchange flows.

Miner Flows to Exchanges Have Accelerated

A report from Macro Hive sheds further light on what is going on with bitcoin miners2.

The researchers at Macro Hive studied known miner addresses on the bitcoin blockchain. They watched to see how many coins were being sent from these addresses to exchange addresses, and found that for much of the year miners have been sending less bitcoin to crypto exchanges each month. In May and June, however, the number of bitcoins being sent to exchanges suddenly increased.

Macrohive UTflows

Macro Hive had previously published a study showing that inflows to exchanges are bearish for bitcoin3. The new study built upon that idea by specifically studying how miner flows affect the price. Macro Hive concluded that this selling behavior is probably caused by the need for miners to cover operating losses as the bitcoin price continues to decline.

But are miners actually posting losses? Are their margins being squeezed, forcing them to sell their stashes of bitcoin and causing further price declines? Or is there some other reason they are selling?

Let’s take a look at the biggest cost for bitcoin miners: electricity.

Pro Tip: If you’re planning to store bitcoin long term, one of the best places to put it is in a wallet — especially a hardware wallet. Unlike an exchange, a wallet can’t be logged into with a username and password, so it’s much more difficult for an attacker to get into. See our roundup of the best crypto wallets to learn more.

Electricity Costs Are Going Up

Bitcoin miners are facing rising electricity costs as inflation heats up all over the world. The price of electricity in the U.S. has risen from 11.1 cents per kWh to 11.7 cents per kWh so far this year. That’s a 5.4% increase in just a few months.

electricity prices
Source: YCharts.com

But it’s not just the price of each kWh that has gone up. Over the past year, the difficulty of the bitcoin hash problem has also increased, driving up the number of kWh needed to mine each coin.

biocoin difficulty
Source: Blockchain.com

With electricity costs this high, some miners have finally started to shut down.

Some Bitcoin Miners Are Shutting Down

As the hash problem has risen in difficulty and the bitcoin price has plunged, miners’ margins have been squeezed. As a result, some have been unable to continue operating and have closed up shop. We can see this by looking at the total hash power of the bitcoin network. The data shows that the number of miners has been declining since the beginning of June.

bitcoin hash rate

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All this news may seem pretty depressing at first glance, but what does it really mean?

What Does This Mean?

If you’re new to bitcoin or crypto, this news can seem alarming — but this has all happened before. In late 2018, bitcoin miners were going bankrupt and the hashrate was falling. Many long-term crypto investors still remember this Ethereum World News article from November 2018:

2018 bitcoin article

The number of miners also fell in 20144. Do you notice a pattern here? Bitcoin saw huge price declines and falling hash rates in 2022, 2018, and 2014. Each bear market in mining occurred approximately four years after the previous one.

And it’s not just these bitcoin events that have happened every four years. The first major bull market in bitcoin was in 2013. The next one came in 2017, and the most recent one was in 2021. Each bull market has been spaced out by around four years.

So what is going on?

The Bitcoin Four-Year Cycle

Throughout its history, bitcoin has behaved in a mysteriously predictable way, based on a four-year repeating cycle. The cycle consists of three periods:

  1. A rising period, or “boom,” that lasts around a year and a half.
  2. A falling period, or “bust,” that lasts about a year.
  3. A “stabilization” period that lasts about a year and a half, in which the price rises slowly or goes sideways.
  4. At the end of the stabilization period, the process has historically started over.

    What accounts for the strange four-year cycle? No one knows for sure, but the most common explanation is that it is caused by the “Bitcoin Halving Event” that occurs every four years. The event causes miners to behave in ways that lead to a four-year cycle for bitcoin’s price.
    When Bitcoin was first created, it was programmed to reduce mining output by 50 percent every 210,000 blocks, which is approximately every four years. Each time this happens, the cost of producing a single bitcoin doubles.

    The rising period
    When the cost of producing a bitcoin doubles, it causes large miners to hoard bitcoins instead of selling them since they would otherwise be selling their coins at a loss. That drives up the price of bitcoin on the open market, which in turn causes mining profits to increase.

    This period of rising price and increased mining profits usually goes on for about a year and a half after the halving event. This is the “bitcoin bull market” that keeps repeating every four years.

    As mining profits go up, newer, more opportunistic miners enter the market. These new miners use the latest, most efficient mining computers, and they sell a large percentage of their coins.

    If enough of these miners enter the market, they will start to seize market share from the older, less efficient miners. That eventually forces the older miners to sell their bitcoin stashes and buy more efficient computers.

    The falling period
    But these old, dominant mining firms are sitting on huge stashes of bitcoins. When these firms start selling, it causes a tremendous decline in the price of bitcoin. That causes the smaller mining firms (which don’t have access to capital) to go bankrupt, at which point the major miners re-establish their market power.

    This period of clearing out the weaker bitcoin miners is called a “crypto winter,” and it’s the period we seem to be going through right now (although we can’t say for certain it’s only a crypto winter and not an ice age).

    The stabilizing period
    If a crypto winter goes on long enough, all the weak miners get pushed out of the market. At that point, the price of bitcoin stabilizes — until the next halving event, when the whole process starts over again.

    FYI: Not all cryptos go up or down based on the same characteristics. Proof-of-stake cryptos such as Avalanche (AVAX) and Fantom (FTM), for example, can be staked to earn a yield, and they behave very differently from proof-of-work cryptos such as bitcoin. You can find out more about what causes a crypto to go up or down in value in our guide, How Does Cryptocurrency Gain Value?

    Of course, this is just a theory. It’s the most common way of explaining why we keep seeing these periods of bitcoin mining decline every four years. But it would be very difficult to prove the theory conclusively.

    Still, it’s important to recognize that, whatever the reason, it’s normal for bitcoin to have a period when small miners go bankrupt and get gobbled up by larger competitors. It happened in 2014, 2018, and, now, 2022. It may happen in 2026 as well.

Large Miners Are Crushing Their Competitors

So that’s what’s happening in the bitcoin mining market. The large bitcoin miners are no longer HODLing. They are dumping their coins on the market, crashing the price, and bankrupting their competitors. The world of bitcoin mining is a brutal, dog-eat-dog struggle for survival.

Unfortunately, investors often get caught in the crossfire. But the good news is, if history repeats, this falling period should be over before long — and history shows that the ones who stick around tend to get rewarded in the end.

Of course, bitcoin could break out of this cycle at some point in the future. History isn’t always a good predictor of the future. But for now, hopefully this explains why bitcoin miners are no longer HODLing.

Citations

1. Arcane. (2022). Miners have started to dump their bitcoin holdings.
https://arcane.no/research/miners-have-started-to-dump-their-bitcoin-holdings

2. Macro Hive. (2022). Miners Dump Their Bitcoin Holdings as Revenues Plummet.
https://macrohive.com/hive-exclusives/miners-dump-their-bitcoin-holdings-as-revenues-plummet/?uid=7282223247

3. Macro Hive (2022). Do Flows Onto Crypto Exchanges Predict Bitcoin Price Moves?.
https://macrohive.com/hive-exclusives/do-flows-onto-crypto-exchanges-predict-bitcoin-price-moves/

4. CoinDesk. (2014). Bitcoin Price Decline Sparks Rare Mining Difficulty Drop.
https://www.coindesk.com/markets/2014/12/03/bitcoin-price-decline-sparks-rare-mining-difficulty-drop/