It seems that miners of the pioneer cryptocurrency are feeling the heat and this is putting a pressure on prices. The massive Bitcoin rally in 2021 drove thousands of people into the mining sector. Therefore, the hashrate, which refers to the combined computational power used by global bitcoin miners, has almost quadrupled in the last six months to exceed 200 million ‘terahashes’ per second. When the hashrate rises, it means that mining the crypto has become harder and this makes it difficult for miners to cover their electricity, hardware and other costs. Thus, most of them are more likely to sell the bitcoin they mine instead of holding onto it.
This ends up in a bearish market. Market experts say that the costs of mining play a key role in the decision of miners to sell off or hold newly acquired coins. As they are the first sellers in the market, it is a given that they would have a direct impact on prices. Statistics reveal that at the start of November last year, the total value of crypto that existed in miners’ wallets had been $114 billion, but this figure has now declined to $75 million. Analytics indicate that miners are choosing to transfer their minted coins to exchanges rather than putting them in reserves, which is an indication of their intent to sell.
Due to these flows, there has been increasing pressure on Bitcoin that had drifted towards the mainstream and this saw the crypto get caught in the global market selloff that occurred due to tensions between Russia and Ukraine and the policy tightening of the Federal Reserve. The world’s leading crypto has seen its price decline to $37,854 and this is about 45% lower than its all-time high of $69,000, which it had reached on November 10th.
The problem is that with more miners joining the bitcoin network, every individual is earning fewer bitcoin. This happens because network difficulty increases for slowing down the issuance of new bitcoins. The broader market is also suffering due to waning mining profitability. This is because institutional investors, who either don’t want to or cannot directly invest in crypto, end up purchasing shares of listed miners or go with ETFs that track miners as an alternative of participating in the industry. Since early November, there has been a decline in the shares of US-listed crypto miners Riot Blockchain and Marathon Digital Holdings by 52% and 66%, respectively.
Meanwhile, the Valkyrie Bitcoin Miners ETF, which had been launched in early February, is now trading at 5% lower than what its net asset value was at the time of launch. Likewise, there has also been a 23% decline in the ViridiClean Energy Crypto-Mining and Semiconductor ETF since the start of the year. The inherent structure of bitcoin is also one of the reasons of the pressure on miners. But, there is no denying that it has all taken a toll on the price of Bitcoin, which is nowhere close to the all-time high of last year.
