Crypto Winter Ends Era of Bitcoin Mining ‘Hodlers’

The last publicly traded bitcoin miner to follow a 100% “hodl” strategy since the bull market, Hut 8 Mining (HUT), said last week that it finally relented, selling 188 bitcoins in February to fund its operations.

Miners in general have found it difficult to raise funds for operations, including in the form of capital in public markets, due to a downturn in the broader financial market and reduced margins. Some of the miners who chose to hold on to their mined bitcoins through the last bull market and into this bear cycle are now starting to sell the coins, mostly to pay for day-to-day operating expenses.

“It was only a matter of time before these companies needed to be a little more careful with cash on hand,” given rising interest rates and other obstacles, said Chris Brendler, an analyst at DA Davidson who covers the bitcoin mining industry.

Holding bitcoin reserves, which miners produce, can be very expensive. As other types of financing became less available, the companies had to sell off what they were operating to finance operations and growth.

“When the market was at its peak, public bitcoin miners aggressively financed the operation of existing assets and growth capital with equity issuances, which the market supported (or overlooked),” said Kerri Langlais, chief strategy officer at bitcoin miner TeraWulf (WULF).

Marathon Digital spokesman Charlie Schumacher said miners who held onto their bitcoin were getting “brownie points” from both investors who saw a ballooning balance sheet and the long-time bitcoin community.

But Langlais said that during the bear market, the practice of holding bitcoin resulted in “tremendous dilution” for shareholders while the price of bitcoin and mining stocks fell. Eventually, investors were no longer willing to support companies’ strategy of “growth at any cost” or to hold mined bitcoin while financing operating losses with equity, she said.

“The example of debt-laden bitcoin miners going through bankruptcy protection or debt restructuring” contributed to the decision to sell bitcoin reserves, said Wolfie Zhao, head of research at TheMinerMag, a business started by BlocksBridge Consulting to provide research and data on cryptomining.

Tim Rainey, treasurer at bitcoin miner Greenidge Generation (GREE), said the trend was likely started by “the decline in the price of weed [mining profitability]” and “the need for liquidity during the bear market to fund operations and other obligations.”

The liquidation of bitcoin holdings was particularly strong in June 2022, when miners sold 14,200 bitcoins, according to Zhao’s analysis. About half of this came from Core Scientific, which is now bankrupt. Since then, miners tracked by Zhao have sold 5,000 to 7,000 bitcoins per month, more than double what they sold between January and May 2022.

Although the writing was on the wall for miners selling off their holdings, timing the sale is critical to maximizing profit.

Many miners and investors were forced to sell bitcoin last year, but Marathon wanted to make sure that when it started selling, it was clear to the outside world that it made “a conscious choice that had to do with financial management and building the business,” it said Schumacher, the spokesman.

Marathon wanted to “produce at a high enough capacity and have a good view of our bitcoin production” to feel comfortable selling, he said. The miner first started selling his mined bitcoins in January this year to cover operating expenses.

Greenidge’s Rainey expects miners to report “large non-cash impairment losses for both digital assets and other mining-related assets, including miners and infrastructure” in upcoming earnings reports.

Zhao expects more miners to “stick to a hybrid strategy until maybe when the bull comes back. But then the question is, will they become 100% owners and repeat the same thing again?”