Public bitcoin miners have sold almost 100% of their mined BTC in 2022 amid plunging cryptocurrency prices and skyrocketing energy prices. Furthermore, the difficulty of mining a bitcoin block fell by 7.32% during the latest adjustment, suggesting that more miners have powered off machines as a brutal bear market eats into profit.
Miner Sell-Off Places Pressure On Bitcoin Price Performance
Tom Dunleavy, a senior research analyst at the blockchain research firm Messari, has revealed that miners have sold off almost all of their mined Bitcoin throughout 2022. He argued that the consistent sell-off might have put downward pressure on the price of the flagship cryptocurrency.
More specifically, around 40,300 of the 40,700 BTC mined by ten public Bitcoin mining companies, including Core Scientific, Riot, Bitfarms, Cleans Park, Marathon, Hut8, HIVE, Iris Energy, Argo, and Bit Digital, from January 1 to November 30 has been sold off.
According to data by CryptoQuant, the BTC holdings of mining companies have seen a steep decline during the second half of the year, particularly throughout November. As of now, Bitcoin miners hold around 1.842 million BTC, down from over 1.854 million in August this year.
The latest Bitcoin difficulty adjustment also saw the difficulty of mining a bitcoin block fall by 7.32%, the most significant downward change since July 2021, according to data by BTC.com. This suggests miners are powering off machines as the crypto winter eats into profit.
Dunleavy noted that the BTC sell-off helps build a good thesis to be bullish on the ETH/BTC ratio trade, suggesting that Ethereum might significantly outperform Bitcoin in terms of price. He said:
“One asset has sellers who need to raise capital to keep the lights on. The other doesn’t. Pretty straightforward. Plenty of other factors ofc but this is pretty meaningful.”
Rising Electricity Costs Eat into Miners’ Profit
Energy prices dropped when Covid first struck because of the lockdowns and other measures. As countries left or reduced these restrictions, the demand for energy started recovering, which led to the first spike in energy prices. A second spike came during 2021 amid surfacing supply-side issues.
This development was aggravated in early 2022 by the Russian invasion of Ukraine. Russia previously supplied about 12% of the world’s oil supply, which is used to make gasoline. Moreover, the country supplied more than 40% of Europe’s total gas consumption, 27% of oil, and 46% of coal consumption in 2021.
Energy prices hit historical highs in 2022. On August 26, European gas prices where Dutch Title Pricing Facility (TTF) hub, the benchmark European gas price, set a record of nearly 340 euros per megawatt-hour (MWh), nearly 11 times the price recorded one year earlier.
The soaring energy prices continued to eat away the profit of Bitcoin miners, who require expensive equipment and a lot of electricity to power data centers packed with highly specialized computers that crunch math equations to validate transactions and simultaneously create new tokens.
Crypto Meltdown Exacerbates Mining Profitability
Plunging BTC and crypto prices have further exacerbated mining profitability. This year has been one of the worst for the crypto sector, with over a trillion dollars in value wiped out from the market.
The crypto meltdown, which started with the collapse of Terra’s algorithmic stablecoin UST, saw another major blow last month after FTX, once the third-largest crypto exchange in the world, filed for bankruptcy protection, with cryptocurrency prices going into a free fall.
Bitcoin, trading above the $20,000 mark in the wake of the FTX collapse, plunged to below $16,000, dropping to two-year low levels. The broader crypto market also lost around 20% amid the turbulence. As of now, Bitcoin is trading around $16,580.38, up by 1.3% over the past day.
Meanwhile, amid all these headwinds, some Bitcoin mining companies have been forced to shut down. Just last week, Core Scientific, one of the largest Bitcoin mining companies, filed for Chapter 11 bankruptcy protection in Texas. Other mining firms, including Argo Blockchain, Iris Energy, and Greenidge Generation, are also struggling with a liquidity crunch.
This article originally appeared on The Tokenist
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