Why are Bitcoin miners selling their holdings?

Crypto miners have come under pressure amid rising costs and falling returns.

| More on:
A man lays his head down on his arms at his desk in front of an array of computer screens and a laptop computer.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Miners transferred US$6.3 billion in Bitcoin to exchanges in May
  • Surging power prices coupled with slipping crypto prices are putting miners under pressure
  • Bitcoin is down 54% from its 10 November record highs

Bitcoin (CRYPTO: BTC) miners, not unlike gold prospectors of yesteryear, get rewarded for their efforts via payments in Bitcoin.

You can see then how rocketing crypto prices last year drew in a large wave of new miners.

The world’s top token by market cap commenced trading in 2021 for just under US$32,000, right around the current price of US$31,206.

But it was the meteoric increase in the price over the following months, which saw Bitcoin hit record highs of US$68,790 on 10 November, that really spurred new miners into the action and saw many existing miners expand their capacities.

Why then might they be selling their holdings today?

US$6.3 billion in Bitcoin transferred to exchanges in May

Citing data from Coin Metrics, Bloomberg reports that miners transferred 195,663 of their tokens to exchanges last month.

At May’s average Bitcoin price of US$32,000, that works out to just under US$6.3 billion.

No chump change, that.

While transferring to an exchange doesn’t necessarily mean the miners will sell their holdings, the big spike in transfers has certainly caught crypto investors’ attention.

So, what’s happening?

Commenting on the multi-billion dollars in transfers in May, director of content at Compass Mining Will Foxley said, “I think miners are just talking about the macro environment and think it is probably prudent to sell Bitcoin in these levels in order to keep the operations safe.”

Indeed, junior Bitcoin miner Cathedra Bitcoin sold most of its holdings to stay afloat.

“We have spent the last several weeks restructuring our balance sheet and operations to ensure Cathedra is well-positioned to endure a prolonged economic downturn,” Cathedra CEO AJ Scalia said.

Costs up, returns down

Miners betting that the token would regain its 54% losses from 10 November’s all-time highs are still waiting. And with global power prices surging – the vast computer arrays in mining operations use astonishing amounts of electricity – their costs are going up while their rewards have gone backwards.

And the publicly-listed miners are taking a second wallop from the struggling share markets, making capital raising more difficult.

If the Bitcoin price rebounds, we’re likely to see the miners return to holding their tokens tight. But for now, many have little choice but to sell at the current prices to keep their operations running.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin. The Motley Fool Australia has positions in and has recommended Bitcoin. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Cryptocurrencies

A hip young guy works at his home workstation with two screens and a gamers chair, keeping an eye on his crypto investments.
Cryptocurrencies

This is why Ethereum has been outpacing the Bitcoin price gains. Will it last?

The Ethereum blockchain may make its long-awaited transition to a Proof of Stake protocol next month.

Read more »

a man sits in casual clothes in front of a computer amid graphic images of data superimposed on the image, as though he is engaged in IT or hacking activities.
Cryptocurrencies

Will the next era of computing break the Bitcoin price or boost it?

Cryptos have taken a beating over the past months as interest rates around the world ratcheted higher. But is there…

Read more »

a shiba inu dog looks happily at eh camera with his tongue out while his owner hods him on his chest as he sleeps on a hammock.
Cryptocurrencies

Here’s why the Dogecoin price has had such a great week

Economic data out of the United States and a surprise announcement by BlackRock offered some healthy tailwinds to cryptos over…

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Cryptocurrencies

Why this Bitcoin maximalist says all other ‘crypto is a scam’

Initially introduced in a 2008 whitepaper by one or more people going by the pseudonym of Satoshi Nakamoto, Bitcoin launched…

Read more »

A hand reaching into a computer to grab digital money, indicating a rise in the use of cryptocurrency
Cryptocurrencies

Why an RBA-issued crypto-like currency could soon be a reality

The RBA is piloting a central bank-baked digital currency.

Read more »

A male investor wearing a white shirt and blue suit jacket sits at his desk looking at his laptop with his hands to his chin, waiting in anticipation.
Cryptocurrencies

Can the Bitcoin price reach US$30,000 again in 2022?

Rising interest rates have resulted in significantly less institutional investor interest in cryptos.

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Cryptocurrencies

Could this key metric signal more bad news for the Bitcoin price?

Crypto investors are keeping a close eye on the signals that could see the US Federal Reserve begin to ease…

Read more »

Man sitting at a desk facing his computer screen and holding a coin representing discussion by the RBA Governor about cryptocurrency and digital tokens
Cryptocurrencies

Is it smart to use dollar cost averaging to buy Bitcoin?

Should investors consider a DCA strategy for cryptocurrencies like Bitcoin?

Read more »