Crypto miners rapidly exiting bitcoin positions

Published On: July 19, 2022Categories: Alternative Investments2.2 min read

14,000 bitcoin, worth more than $300 million at its current price, was transferred out of wallets belonging to miners in a single 24-hour period at the end of last week

New data from blockchain analytics firm CryptoQuant shows that miners are rapidly exiting their bitcoin positions.

14,000 bitcoin, worth more than $300 million at its current price, was transferred out of wallets belonging to miners in a single 24-hour period at the end of last week — and in the last few weeks, miners have offloaded the largest amount of bitcoin since Jan. 2021.

The phenomenon is called ‘miner capitulation,’ and it typically indicates that miners are preparing to sell their previously mined coins in order to cover ongoing mining expenses.

Bitcoin is currently trading around $21,600, up about 3% in the last 24 hours. Still, the wider crypto market has been in a slump for months, with bitcoin down nearly 70% from its all-time high of around $69,000 in Nov. 2021.

Meanwhile, inflation is on a tear, and the cost of energy is hitting record highs as the war between Russia and Ukraine rages on.

Lower bitcoin prices and higher energy costs are compressing profit margins for miners, which is part of why some are selling bitcoin at current prices to try to contain exposure to continued volatility in the sector and mitigate against further risk to their bottom line.

Given rising electricity costs, and bitcoin’s steep price decline, the cost of mining a bitcoin may be higher than its price for some miners, Citi analyst Joseph Ayoub wrote in a note on July 5.

With high-profile reports of resignations from mining companies, as well as miners that have used their equipment as collateral to borrow money, the bitcoin mining industry could be under growing pressure, the note continued.

Core Scientific, which is one of the largest publicly traded crypto mining companies in the U.S., sold nearly all its bitcoin in June. CEO Mike Levitt tells CNBC that just like any other business, bitcoin miners need to pay their bills.

We mine and earn or produce bitcoin, but our costs, expenses, and liabilities are in dollars, said Levitt.

It’s still profitable to mine bitcoin, Levitt says, with around 50% margins across the industry. That’s down from 80% margins at its peak.

Last month, Core sold 7,202 bitcoin at an average price of $23,000. Levitt tells CNBC they invested the proceeds of approximately $167 million primarily into growth-oriented activities, including new ASIC servers and additional data centre capacity for their self-mining and colocation businesses.

But they also deployed some of that capital to repay debt and to help settle five years of employee stock grants.

Long-term, Levitt is optimistic because there’s tremendous positive operating leverage in the business. Over certain levels, every dollar increase in the price of bitcoin is 100% operating income to bitcoin miners.

We would all be cheering loudly if bitcoin were to get back to $35,000, $40,000. There is no doubt about that, he said.

About the Author: Jonathan Adams

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