What’s been going on with Bitcoin miners in recent weeks? It’s more a story of what’s happened the past few months, which has become apparent in recent weeks.
A 🧵 on what has been happening in the BTC mining space:
We’ve seen a large divergence between hash rate and the price of BTC in recent weeks. This divergence has caused concern for miners because as hash rate rises, revenue per hash decreases.
14 of the 22 difficulty adjustments this year have been upwards. This includes 4 instances of difficulty rising by more than 5%, while only 1 difficulty adjustment has been below -5%.
This rise in hash rate can be offset by several factors including newer mining equipment, which comes with greater efficiency, or a rising BTC price, which increases USD-measured revenue for miners. So far, BTC has trended downwards YTD.
Flows data and recent news flow shows that miners are contributing to BTC sell pressure, an indication that they may be selling BTC to sustain their operations.
Recent news coverage has reported that the most troubled miners have already depleted a large portion of their BTC reserves. We are simply hearing about it after the fact.
@samjrule shows that public miners still hold nearly 35k BTC collectively. If hash rate doesn’t begin peaking, or price recovering, we could see this stockpile continue to be used to provide firms with USD to pay the bills while margins are compressed.
It has also been common practice for BTC miners to borrow against mining rigs. These aren’t usually marked to market like a spot crypto loan is.
As long as they can continue making regular payments on these loans, miners typically won’t have issues with this collateralization.
To address cash flow issues, miners have relied on their liquid BTC treasuries. If one can stay solvent long enough to see the turn in hash rate and/or price, then there is a chance of staving off bankruptcy.
It may be that hash rate will need to decline rather meaningfully before news of mining operations failing subsides. Block rewards & miners’ BTC treasuries may continue to be depleted and serve as a price headwind for the time being in BTC markets.
Some of the most troubled firms have already publicly announced significant sales of BTC in prior months, which may signal a low point has been reached; however, the wash out in hash rate, and subsequently difficulty, hasn’t happened yet.
/ENDThis post is based on this twitter thread.