The profitability of Bitcoin mining has been falling along with the market decline. The cash flow from mining rigs has become increasingly stunted over time, causing bitcoin miners to start selling their assets to cover the cost of their operations. But even as this continues, there is a bigger issue that could threaten the recovery that BTC has made so far, which is the fact that larger miners may be forced to liquidate their holdings.

Bitcoin miners can’t meet

Typically, bitcoin miners are known to hold the coins they earn from their activities. Since miners don’t buy the coins in the first place, it makes them the natural net sellers of bitcoin. However, their tendency to hold onto these currencies has often led them to unload their bags on suffering markets. So instead of selling in a bull market, they tend to hang on until the bull market ends, and with returns low in a bear market, they are forced to sell coins to fund their trades.

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The same is the scenario that is currently developing in the market. With bitcoin more than 70% down from its all-time high, miners are not as profitable as they were in November 2021. In the first four months of 2022, public mining companies are reported to have had to download around 30% of your BTC has to come from mining. This meant that miners had to sell more BTC than they produced in the month of May.

Since the market in May was significantly better than in June, miners are expected to have to increase sales. This is likely to cause miners to sell all of their BTC production for the month along with the BTC they already had prior to 2022.

BTC miners selling stakes | Source: Arcane Research

Implications of a liquidation

It is important to note that bitcoin miners are some of the largest bitcoin whales in the space. This means that their holdings have the potential to be a major factor in the market when dumped at the same time. These miners hold up to 800,000 BTC in aggregate and public miners account for only 46,000 BTC of that amount.

What this means is that if bitcoin miners are pushed into the wall where it triggers a sell-off, the price of the digital asset would have a hard time resisting. The huge selling side pressure that it would create would push the price further down, probably being the event that would see it bottom out.

Falling prices force miners to sell BTC | Source: BTCUSD on TradingView.com

The behaviors of public miners can often help signal whether a massive liquidation is imminent. These public companies only account for about 20% of all bitcoin mining hashrate, but if they are forced to sell, private miners will likely be forced to sell.

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The short-term rally by bitcoin may push this sell-off back. However, it will only be a short-lived respite as energy costs are constant and some machines, namely the Antminer S9, are now cash flow negative. To survive the bear market, miners would simply have no choice but to dump some BTC to weather the storm.

Featured Image from Newsweek, Charts from Arcane Research and TradingView.com

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