14 Aug 2022

The selling pressure from the public bitcoin miners is easing

The public miners are still dumping their bitcoin holdings, but not nearly to the same extent as during the mining bloodbath earlier this summer. Does this signal that the worst is over for the public miners?
Source: Public miners’ monthly production updates
The market rout during May and June created a new generation of forced bitcoin sellers, as known institutions dumped close to 240,000 BTC. Due to their "hodl at any cost strategy", public bitcoin miners had spent the previous year building up among the largest bitcoin treasuries. As with most die-hard hodlers with such enormous treasuries, the public bitcoin miners didn't manage to escape the bear's claws and were forced to dump thousands of bitcoin in May and June to fire sale prices.The selling pressure from the public miners has since weakened, as they "only" sold 6,200 BTC in July, less than half the amount they sold the previous month. Even after this decline, July was still the second-highest BTC selling month in 2022 for the public miners, indicating that they are still in a difficult financial position.
Why have the miners been dumping their bitcoin?
Even though the public miners sold less than half the amount in July as in June, we still see that they are draining their holdings if we look at the percentage of the bitcoin production sold. The public miners sold 158% of their bitcoin production in July, making it the third month in a row where they sold more than 100% of production. There are two main reasons why miners have been dumping their bitcoin holdings:
  1. Funding expansion plans (de-risking): As I explained in this article, the public miners have significant upcoming expenses related to their massive expansion plans. There are three ways miners can fund capital expenditures: equity, debt, or internal capital. Historically the public miners have preferred to hoard internal capital in the form of bitcoin and instead raised equity or debt to fund growth. With capital markets drying up, miners are now forced to rely increasingly on internal capital. The public miners' expansion plans go several months into the future, and they are selling some bitcoin now to get their bank accounts ready for future dollar-denominated payments.
  2. Avoiding liquidation on bitcoin or machine collateralized debt (forced selling): Miners with significant BTC or machine collateralized debt positions were forced to sell BTC to avoid margin calls. The miners with the largest positions of such precarious debt were Core Scientific and Bitfarms, which sold 9,903 and 3,353 BTC in May and June.
Source: Public miners’ monthly production updates
Why are the public miners selling less bitcoin than in June?
The dark side of the "hodl at any cost strategy", which has become evident by now, is that the lower the bitcoin price goes, the more likely miners who follow this strategy are to sell their bitcoin. While the bitcoin price plummeted by 41% in June, it rebounded in July and gained 26%. This naturally gave the public miners some breathing room, and June's forced selling stopped. July has seen a more natural selling pressure related to de-risking as part of funding expansion plans, as explained in the section above.In addition, some of the forced sellers from June spent that month restructuring their balance sheets. Core Scientific and Bitfarms were among the miners with the highest bitcoin and machine collateralized debt positions, but they both paid down significantly on these positions during June. These companies were the biggest bitcoin sellers in May and June, as they were forced to sell to avoid getting liquidated.Even after these restructuring efforts, it doesn't look like Core Scientific and Bitfarms are done dumping coins, as they sold 1,975 and 1,623 BTC in July. These are still significant amounts for both companies, especially for Bitfarms, which only mined 500 bitcoin in July.
Does this signal that the worst selling is over for the public miners?
The public miners are now collectively hodling 33,772 BTC, a 27% reduction from the all-time high in April this year. Until April, the miners hodled between 60% and 80% of their mined BTC, but for the last three months, they have sold more than 100% of production.As I explained last month, I expected the selling pressure from the public miners to ease but persist to a significant degree. This has, until now, proven to be the correct assessment. I expect the selling pressure to continue at between 100% and 150% of production unless something significant happens to the bitcoin price. This is equivalent to between 4,000 and 6,000 BTC per month.
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