The price of Bitcoin may be further challenged if this 1 miner’s decision becomes an industry trend
In June, cryptocurrency mining company Bitfarmer (BITF 2.26%) sold 3,352 Bitcoins (BTC -3,70%) – More than half of the Bitcoins company held at the time. Given that more than 19 million Bitcoins have been mined so far, this may seem like a drop in the bucket. But it’s more complicated than that.
Bitcoin’s price has risen drastically in recent years, mainly due to an imbalance in supply and demand. And this imbalance was helped by the actions of miners like Bitfarms, Digital Marathon, Riot Blockchain, and others. And if Bitfarm’s decision to sell becomes a pervasive trend, it could cause the price of Bitcoin to fall further.
Why Bitcoin is going up and down
It may seem like an oversimplification, but the price of Bitcoin increases when there is more demand than supply. And the price goes down when there is more supply than demand. In other words, the price goes up when there are more buyers than sellers, and vice versa.
By the way, the same applies to shares. However, it is easier to predict which shares will have buyers. Historically, investors have been concerned about profits and cash flows. So when earnings go up over long periods, the stock tends to be desirable for investors and goes up as a result.
On the other hand, owners of cryptocurrencies are not entitled to profits or cash flows. Some cryptocurrencies are part of decentralized autonomous organizations (DAOs) that have business models and reward token holders, but I’m going away. The point is that Bitcoin demand is difficult to predict.
The Bitcoin supply is the much clearer side of the equation. When you make a transaction on the Bitcoin blockchain, miners like Bitfarms process these transactions. And to thank them for voluntarily borrowing their computing power, they get paid in new Bitcoins.
There are about 900 new Bitcoins mined every day. In 2024, the rate of new Bitcoin will be halved – there have been three of these halving events before. And every few years, the payout for Bitcoin mining will continue to be halved until all 21 million Bitcoin have been mined – this is predicted to happen more than 100 years from now.
Why You Should Look At Bitcoin Miners
In the first quarter of 2022, it cost Bitfarms around $ 8,700 on average to extract one Bitcoin. The price of Bitcoin has fallen approx. 70% from record highs. But even with this fall, Bitfarms still has a good gross profit margin, taking into account the cost of mining.
But here’s the spark. Bitfarms does not cover expenses that may be paid with Bitcoin. The bills are paid in fiat currency. The same can be said for Marathon Digital and Riot Blockchain. Even if the profit margins are good in theory, they still have to somehow get hold of government-issued money.
In recent years, the major Bitcoin miners have had easy access to financing to pay the bills. For this reason, like Bitcoin bulls, they have kept the Bitcoins they have mined. For example, as of June 1, Marathon Digital had not sold a single Bitcoin since October 2020 and had 9,941.
Financing is becoming more difficult to obtain. The stock market is down. Interest rates are up. And countless players in the cryptocurrency area are going under. With millions of dollars in operating expenses every quarter, miners like Bitfarms, Marathon Digital and Riot Blockchain need to get money from one place. And for Bitfarms, it’s selling more than half of Bitcoin.
Riot Blockchain is also a recent Bitcoin seller, albeit on a smaller scale. In March, the company began selling some of the Bitcoin it extracts and has continued to do so every month since. However, the company’s holdings have increased to 6654 Bitcoins as of June 30 because it still has a portion of the Bitcoin it mines each month.
The large Bitcoin miners kept virtually all of the Bitcoin they mined in recent years, which means that the circulating supply of Bitcoin did not increase much. Demand from investors and companies began to increase, and prices rose as a result. In short, miners greatly contributed to the imbalance between supply and demand.
This trend can now be reversed if miners become net sellers of Bitcoin. Keep in mind that Marathon Digital has $ 86 million in total liquidity as of June 1 and millions in quarterly operating expenses. That money must come from somewhere. The company could choose to become a seller as well.
If miners become net sellers of Bitcoin, the imbalance between supply and demand could swing the other way, and prices could fall further. Personally, I am still optimistic about the long-term path to Bitcoin. That said, liquidity for Bitcoin miners is a real risk that I believe deserves monitoring.
