Bitcoin Miners Sold 100% of Their Outputs in May: Analyst

Digital assets-focused firm Arcane’s latest research on bitcoin miners indicates that public-traded companies sold 100% of their mined coins in May due to declined profit margins and volatile market conditions. The selling rate drastically jumped from roughly 30% in the first four months of 2022.

HODL Strategy

During the bull market, publicly-traded bitcoin miners tended to keep most of their mined coins when the landscape was in a sanguine state. However, when the dark times hit with the primary cryptocurrency crashing below $30,000 in May, many miners were forced to abandon their HODL strategy by selling their coins, according to the latest research by Arcane.

One of the key reasons rests upon the “plummeting profitability” amid rising hashrate and pessimistic market conditions. The research indicated that extreme high profitability, as recorded last November, led to massive investment in miners’ production capacity, resulting in “a growing hashrate while the bitcoin price has fallen.”

This phenomenon pushed down the profit margins as miners were required to deploy more computational power to gain equivalent outputs as they had in the past. Despite the advantages of accessing cheap electricity and energy-efficient machines, some miners still struggled to create net cash flow for their mining businesses as bitcoin’s nosedive showed no apparent respite:

“The increasing hashrate and the falling bitcoin price have pushed the mining profitability down to levels not seen since 2020. At $40 per MWh, the energy-efficient Antminer S19 currently yields a cash flow per bitcoin of $13k, corresponding to an 80% decline from the November 2021 peak. The Antminer S9, our proxy for old generation machines, is now cash-flow negative.”

Sell Bitcoin for Debt Payments

It’s worth noting that many publicly-traded miners could easily raise capital when the broader equity market remains bullish. It’s common for miners to collateralize their machines and bitcoin holdings for loans that were used to cover operational costs and expand mining facilities. In this way, they could keep most of their bitcoins as they believed the landscape will remain in such a bullish state.

For instance, Marathon – the largest bitcoin holder among all listed miners with 9,673 BTC on their balance sheet – had a total debt of $729 million by March 31st. The giant used most of the loans to purchase machines – betting the primary cryptocurrency could keep rising in value.

Given the asset’s price plunging harshly, which brought down the value of mining machines, many miners had to sell their monthly output in order to pay off their debts and cover operational expenses. Companies running out of dry powders may even fall into financial difficulties. The research reads:

Miners have several options to finance their operations without selling bitcoin, for example, issuing equity or raising debt with their machines or bitcoin holdings as collateral. This was easy during the raging mining bull market in 2021 when capital was flowing around. The market conditions are now entirely changing, and as a result, we will likely see more mining companies diverge from their hodl-at-any-cost strategies.

Canada-based mining giant Bitfarms announced adjusting its HODL strategy and selling 3,000 BTC – nearly a half of its total bitcoin holdings – for approximately $63 million to improve its corporate liquidity. It was the latest example of miners de-leveraging and decreasing their debts amid rising market volatility.