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 man holding a mobile phone walks past some buildings
Cryptocurrencies

The Betashares Crypto Innovators ETF (CRYP) is up 37% in a month. Is it too late to buy?

Looking at the CRYP ETF? Here's my take on whether it's too late to buy.

Read more »

Bitcoin ETF digital illustration.
ETFs

Why is the BetaShares Crypto Innovators ETF (CRYP) surging on Thursday?

Some massive Bitcoin news is lifting this ETF today.

Read more »

A woman holds a bitcoin token in her hand as she smiles at the camera in the background.
Cryptocurrencies

Bitcoin ETF approved. When is it coming to Australia?

Crypto bulls will be celebrating this milestone moment.

Read more »

person dancing in bitcoin spectacles wearing a gold outfit with hands up.
Cryptocurrencies

Bitcoin price rockets to 21-month highs. Here's why

The Bitcoin price is now up more than 174% in 12 months.

Read more »

BTC spelt out on wooden blocks with a red sign going down.
Cryptocurrencies

Bitcoin price sinks from 21-month high as ETF rumours swirl

What's going on with this cryptocurrency this week?

Read more »

person dancing in bitcoin spectacles wearing a gold outfit with hands up.
Cryptocurrencies

Up 145% in a year, the Bitcoin price just smashed through 18-month highs!

After a horror year in 2022, the Bitcoin price has come roaring back in 2023.

Read more »

Two investors look at a graphic showing a bitcoin in the centre
Cryptocurrencies

Why did the Bitcoin price just hit a 17-month high?

The long-standing cryptocurrency is finding its feet to reclaim a price not seen since May 2022.

Read more »

ETF written in gold with dollar signs on coin.
ETFs

This ASX ETF is up 21% in April so far

How on earth has this ETF smashed the market by a factor of 10?

Read more »