Crypto Winter Ends Era of Bitcoin Mining ‘HODLers’

Bitcoin miners are no longer able or willing to hold onto all of their mined digital assets indefinitely as a slump in prices is eating into their margins.

AccessTimeIconMar 15, 2023 at 2:13 p.m. UTC
Updated May 9, 2023 at 4:10 a.m. UTC

The last publicly listed bitcoin miner to pursue a 100% “HODL” strategy since the bull market, Hut 8 Mining (HUT), said last week that it finally gave in and sold 188 bitcoins in February to fund operations.

Miners in general have found it difficult to raise funds for operations, including in the form of capital in public markets, amid a slide in the broader financial market and narrowing margins. Some of the miners that opted to hold onto their mined bitcoin (BTC) through the last bull market and into this bear cycle are now starting to sell the coins, mostly to pay for their daily operating expenses.

Hut 8 hadn’t sold any bitcoin since January 2021, leaving it with 9,242 BTC at the end of February, after the sale. Marathon Digital Holdings (MARA), for its part, sold bitcoin for the first time in January, after it indicated that it would. Marathon still held 11,392 bitcoin in reserve as of the end of February.

Hut 8 CEO Jaime Leverton had previously said the company would sell bitcoin so that it could complete a merger with U.S. Bitcoin Corp.

A matter of time

“It was only a matter of time before these companies needed to be a little more careful with their cash on hand,” given rising interest rates and other obstacles, said Chris Brendler, an analyst at D.A. Davidson who covers the bitcoin mining industry.

Holding onto a reserve of bitcoin that miners produce can be very expensive. As other types of financing became less available, the companies had to sell what they mined to fund operations and growth.

“When the market was at its peak, public bitcoin miners were aggressively funding operations of existing assets and growth capital with equity issuances, which the market supported (or overlooked),” said Kerri Langlais, chief strategy officer at bitcoin miner TeraWulf (WULF).

Marathon Digital spokesman Charlie Schumacher said miners that held onto their bitcoin were getting “brownie points” from both investors who saw a ballooning balance sheet and the bitcoin community that is long on bitcoin.

But Langlais said that during the bear market, the practice of holding bitcoin resulted in “tremendous dilution” for shareholders while the price of bitcoin and mining stocks dropped. Eventually, investors were no longer willing to support companies’ strategy of “growth at any cost” or holding mined bitcoin, while funding operating losses with equity, she said.

At the same time, the prolonged bear market resulted in the bankruptcies of some large-scale miners, including Compute North and Core Scientific, as well as in debt restructurings by some other miners to keep their operations going.

“The example of debt-laden bitcoin miners going through bankruptcy protection or debt restructuring” contributed to the decision to sell bitcoin reserves, said Wolfie Zhao, head of research at TheMinerMag, a business started by BlocksBridge Consulting to provide research and data on crypto mining.

Tim Rainey, treasurer at bitcoin miner Greenidge Generation (GREE), said that the trend was likely kicked off by “the decrease in hash price [mining profitability]” and “the need for liquidity during the bear market to fund operations and other obligations.”

The liquidation of bitcoin holdings was particularly strong in June 2022, when miners sold 14,200 bitcoins, according to Zhao’s analysis. Roughly half of that was from now-bankrupt Core Scientific. Since then, miners tracked by Zhao have been selling 5,000 to 7,000 bitcoins per month, more than twice as many as they were selling between January and May 2022.

Timing is everything

Even though the writing was on the wall for miners selling off their holdings, timing the sale is crucial to maximize the benefit.

Core Scientific started offloading its massive bitcoin holdings in June 2022, when the price of bitcoin started dropping from around $40,000. According to Zhao, the miner could have earned $144 million more if it had started selling in January, instead of waiting for the market to start crashing in May.

Many miners and investors were forced to sell their bitcoin last year, but Marathon wanted to ensure that when it started selling, it was clear to the outside world that it was making “a conscious choice that had to do with treasury management and building the business,” Schumacher, the spokesman, said.

Marathon wanted to be “producing at a high enough capacity and had a good line of sight into our bitcoin production” in order to feel comfortable to sell, he said. The miner first started selling its mined bitcoin in January of this year to cover its operating expenses.

Impairment implications

Greenidge’s Rainey expects miners to report “large non-cash impairment losses for both digital asset holdings and other mining related assets, including miners and infrastructure” in upcoming earnings reports.

Riot Platforms (RIOT), one of the largest firms in the crypto mining industry, reported $147.4 million in non-cash impairments in cryptocurrencies for 2022, compared with $36.5 million the year before. Similarly, Hut 8 took a $113.9 million loss on mining equipment during 2022. The price of mining rigs roughly follows crypto prices.

Zhao expects more miners to “stick to a hybrid strategy until maybe whenever the bull returns. But then the question is will they become 100% holders and repeat the same again?”


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