Cryptocurrency is doing so bad right now that even some of the quintessential “HODLers” are selling.
Bitcoin miners have been unloading their Bitcoin holdings over the past two months as the cryptocurrency markets plummet and Bitcoin declines in value, according to a new report from Reuters.
In an unusual trend throughout May, Bitcoin miners actually sold more Bitcoin than they obtained through mining, according to the digital asset analysis firm Arcane Research. For comparison, in the previous month, miners only sold off around 20 percent of the Bitcoin that they were able to mine, and the rest of their rewards were typically held in hopes of higher eventual profits as Bitcoin’s value soared.
But as crypto has tanked over the past few months, things have gone in a different direction, forcing some Bitcoin miners to sell-off their holdings if they don’t want to shut down.
Bitcoin mining maintains the cryptocurrency’s digital ledger, known as the blockchain, by validating transactions inside of a block and adding it to the chain. The process to validate the transaction has often been explained as computers solving advanced mathematical equations, but it’s really more like complicated guesswork. When a block is added, miners are rewarded with Bitcoins.
While Bitcoin mining has been highly profitable in the recent past, with a single Bitcoin trading in the mid-to-high five figures, the endeavor may not be so lucrative now.
The mining process requires a lot of high-powered (and expensive) computer processing power mustered in order to be the first to validate a given block of transactions. The process also gets more complex, and in turn more costly, as time goes on.
And competition grew as the cryptocurrency hit all-time highs over the past year, meaning ever more machine-power would be needed by miners in order to keep earning Bitcoin. All of this consumes an incredible amount of energy. Bitcoin miners use up more electricity than the countries of Kazakhstan and the Philippines, according to the Cambridge Bitcoin Electricity Consumption Index. With energy costs rising, Bitcoin mining profits are dwindling.
Setting aside energy and competition, Bitcoin mining isn’t likely to get any more lucrative. The reward for validating a block on the blockchain is cut in half after every 210,000 blocks are mined. This happens roughly every four years. In approximately a year and a half, that reward will get cut from 6.5 Bitcoins to just over 3. At current Bitcoin prices (trading at approximately $21,000 at publishing), that means the reward drops from $136,500 to $65,625 in 2024.
So, like everyone else right now, even Bitcoin miners have to tighten their belts. As profits decline, competition may very well dry up, making it easier for the miners who stick around to earn rewards. But, how much will crypto keep crashing? How long until the next shoe drops and, say, another major stablecoin fails like Terra did causing a further decline in the market? Some cryptocurrency miners see the signs and are already selling off their gear. But the Bitcoin mining business isn’t going anywhere just yet. However, those insanely profitable times look like they’re over.
