Miners are driving down Bitcoin’s price, but analysts see silver lining

Analysts have found that miners are currently depressing the price of Bitcoin (BTC), and they may further depress it in the near future, but the future of Bitcoin's bull run will truly begin after that. Crypto market analysis firm Coin Metrics found that miner-led selling pressure on Bitcoin is high and may increase further in the coming months as the halving is approaching in May. While they reiterated that there is not enough data to predict the factors that may lead to the halving, which has led to debate over whether the Bitcoin halving has been priced in by the market, the company found that "miners are the largest single group that represents natural consistent sellers." Coin Metrics wrote: "Miner selling pressure is high because miners must sell the cryptocurrency they earn to cover their fiat-denominated costs. And, as their profit margins tend to zero, miners must sell almost all of the digital currency they mine."

On average, about 1,800 new bitcoins (worth about $11 million) are mined around the world every day. After the halving, the daily supply will be reduced to about 900 bitcoins. Meanwhile, the volume of bitcoin traded in the past 24 hours reached almost 3.6 million BTC ($22.5 billion). Moreover, miners’ selling represents a net capital outflow from the digital currency market, as the fiat they receive may never return to the market. Therefore, “miners’ selling has a huge impact on the rest of the market”. In addition, it can also be said that miners have a cyclical impact on the market - that is, they further exacerbate price increases. The company said that the pro-cyclical behavior of the miner group due to the recent price decline indicates that the selling pressure led by large miners is also increasing further.

They added that miner capitulation "increases selling pressure in the market until inefficient miners are forced to exit the network, but in the long run these events are decisive for prices." Miners may experience repeated cycles of falling profit margins, increased selling, capitulation, and falling prices. After completing this cycle, Bitcoin removes the least efficient miners from the network. "The mining industry should return to a healthier state to support future price increases."

Matt DSouza, CEO of blockchain infrastructure firm Blockware Solutions, spoke with Anthony Pompliano, co-founder and partner at digital asset management firm Morgan Creek Digital, to explain the findings from the firm’s recent report, a phenomenon that Cryptonews.com has previously discussed, saying that the cost of mining for miners is not a price support for Bitcoin as mainstream analysis believes, but the change in mining costs actually accelerated the sell-off. The reason for the network sell-off is that miners must pay electricity bills every month, and when the price of the coin plummets so much - representing 90% of operating expenses are met by selling mined Bitcoin, even if it means that miners withdraw more Bitcoin from their wallets and transfer them to exchanges. When profit margins are compressed and net profit margins are reduced, miners must sell more Bitcoin.

“When the price of Bitcoin started to collapse, these inefficient miners were forced to sell their Bitcoin to pay for their electricity costs, which in some ways exacerbated the sell-off,” D’Souza said. However, he believes this behavior is a natural part of the Bitcoin network’s functioning — “a self-healing mechanism.” The future is optimistic. We will go through cycles of miner capitulation, but once those inefficient miners who are causing market sell-offs leave the network, we will be in “position for the next rally.”