- Record flow of Bitcoin from mining wallets moved into cryptocurrency exchanges this month, an indicator that has long been seen as a proxy for selling pressure.
- Increased demand for Bitcoin on exchanges, including lending and to fund derivative positions could also be responsible for explaining the surge in flows from miners to exchanges as miners look to generate more yield from their holdings.
Being a Bitcoin miner is challenging even in the best of times.
From having to secure cheap and abundant sources of electricity, to dealing with environmental impact issues and regulatory haranguing, the fat margins from mining Bitcoin have long helped to sustain the industry.
But as the soaring price of Bitcoin lured more would-be miners into the industry, the number of new miners contending with higher energy costs are becoming net sellers, when in the past they would have been net “hodlers.”
With Bitcoin threading a tight range between US$28,000 and US$31,000, Bitcoin miners transferred some 195,663 tokens to exchanges in May, their biggest monthly increase since January, according to blockchain data analyzed by Coin Metrics for a total value of around US$6.3 billion.
Miners typically move Bitcoin into exchanges in preparation to sell it, especially when these transfers were from cold wallets that are not connected to the internet.
But just because miners are shifting Bitcoin to exchanges doesn’t necessarily mean that they are looking to sell their tokens, it could also be to generate yield by for instance lending out Bitcoin, or for use to fund derivative positions.
With Bitcoin having fallen by around 35% this year alone, some newer miners who have just entered the fray may be looking to sell to keep their operations liquid.
The rising cost of energy hasn’t helped either, and miners who have secured cheap energy with lower breakeven costs for Bitcoin mining will weather the current market conditions better than those who have to pay more.
Blockchain flow data tracking transfers between miners and exchanges may be seen as proxy for the sale of mined Bitcoin, but that data has its limitations.
For starters, there are now more traders and hedge funds looking to bet against the price of Bitcoin and will need to borrow to do so, with sometimes exorbitant rates, and Bitcoin miners may be looking to get in on some of that action.
There’s also more demand for Bitcoin on exchanges than there used to be in the past, and miners may simply be getting more sophisticated in their quest to generate better yields for their holding of Bitcoin.