Miners, bitcoinspot exchange funds all sell bitcoin when the market is down.
In just three days last week, Bitcoin (BTC) investors experienced their largest ever real loss (transaction realized loss), according to data from Glassnode, a blockchain data analysis service. Selling BTC led to investor losses $7.3 billion. On June 18, the price of BTC hit a new low of $17,700 for the year, which is also the first time it has fallen below $20,000 since 2020.
So, who sold BTC in the downside of the crypto asset market?
On June 22, Canadian crypto mining firm Bitfarms said it sold 3,000 BTC in the past seven days to balance its debt. The company decided to “no longer hoard” Nissan’s bitcoin, opting instead to optimize the company’s balance sheet by taking a “liquidity-enhancing, deleveraging” approach.
Bitfarms can be seen as one of the public miners of Bitcoin, and the falling market is threatening their very existence. In the first four months of 2022, public mining companies sold 30 percent of bitcoin production, according to Norway-based research firm Arcane Research. The slump in mining profitability forced these miners to increase sales to more than 100% of their output in May.
In addition to miners, the world’s largest Bitcoin spot exchange fund (Bitcoin Spot ETF) is also selling BTC. The Purpose Bitcoin ETF, which tracks bitcoin’s spot price, saw an outflow of 24,510 BTC on Friday, the worst single-day redemption since the fund debuted on the Canadian Stock Exchange in April 2021, according to Arcane Research, analysts said. It is believed that the huge capital outflow may have been caused by large-scale forced liquidation.
On June 20, BTC returned to the top of $20,000, and on the 21st, it tested $21,500. It is currently hovering around $20,800, and the uncertainty of the market has not been eliminated.
Miners sell bitcoin to survive
The deterioration in crypto mining profitability has forced public miners to start liquidating their bitcoin holdings.
On June 21, Bitfarms, the largest crypto mining company in North America by computing power, said it had sold 3,000 BTC in the past seven days, accounting for about 47% of its 6,349 BTC holdings. According to the company, it will use the roughly $62 million sale proceeds to “reduce its BTC credit line at Galaxy Digital” to rebalance debt. After Bitfarms sold its crypto assets, including 1,500 BTC, the company’s line of credit was reduced from $100 million to $66 million in June, along with its debt to $38 million.
According to Bitfarms CFO Jeff Lucas, the company will “no longer hoard” all the bitcoin it produces every day (about 14 BTC per day), instead opting to take action “to improve liquidity, deleverage” to optimize the company balance sheet. Bitfarms said it also closed a $37 million equipment financing deal with NYDIG, which keeps the company’s liquidity at about $100 million.
As a listed crypto mining company, Bitfarms only disclosed the news of the sale of BTC yesterday, and it is not only the public miners who sold BTC, Arcane Crypto data shows that the top 28 contributed about 20% of the computing power to the Bitcoin network. Public miners sold 4,271 BTC in May, a 329 percent increase from the previous month.
In the first four months of 2022, public mining companies sold 30% of bitcoin production, according to Arcane Research. The slump in mining profitability forced these miners to increase their sales rate to more than 100% of their output in May, and “the situation worsened in June, which means they may be selling more.”
Bitcoin sale rate for public miners in 2022
Jaran Mellerud, a researcher at the research firm, explained that miners are the only natural net sellers of Bitcoin, receiving 900 BTC per day. Among them, public miners have very low production costs because they have access to cheap electricity and use new energy-efficient machines, which means they have no risk of shutting down their machines, but lower cash flow will make it difficult for them to obtain financing, which may affect their expansion plans.
“Public miners only account for about 20% of Bitcoin’s hash rate, and studying their behavior can suggest what private miners are doing.” Jaran Mellerud pointed out that public miners generate cash flow by selling most of the Bitcoin they mine, and they It is also possible to maintain a larger share of production by accessing financial markets during bull markets, and the situation may be more difficult for private miners with higher production costs. “Miners are the largest whales in the Bitcoin market, holding around 800,000 BTC, of which 46,000 are owned by public miners. If they were forced to liquidate a significant portion of these holdings, it could cause the price of Bitcoin to fall further.”
Largest Bitcoin Spot ETF Outflows
In addition to miners, the BTC thrown into the market also comes from the Bitcoin Spot Exchange Fund (Bitcoin Spot ETF).
The world’s largest bitcoin spot ETF, the Purpose Bitcoin ETF, saw an outflow of 24,510 BTC on Friday, the worst single-day redemption since the fund debuted on the Canadian stock exchange in April 2021, according to Arcane Research. The outflows meant the fund had to sell about $500 million in BTC at Friday’s prices, adding to selling pressure on an already shaky cryptocurrency market, the research house wrote in a report.
The amount of BTC managed by the Purpose Bitcoin ETF halved
Vetle Lunde, a researcher at the agency, analyzed that the huge capital outflow is likely to be caused by large-scale forced liquidation. “The forced sell-off of 24,000 BTC may be the reason why BTC fell to $17,600 this weekend.”
Bitcoin Spot ETFs track the value of Bitcoin and provide a way to invest in BTC without directly dealing with BTC, with ETF managers actively adding and selling Bitcoin to match investor investments and redemptions into the fund . These ETFs can be traded on traditional regulated stock exchanges without requiring users to go to crypto asset trading platforms.
The Purpose Bitcoin ETF is by far the largest bitcoin-focused exchange-traded fund, with nearly 48,000 BTC under management before Friday’s redemption. Right now, the fund only holds about 23,300 BTC. Another similar fund, the 3iQ CoinShares Bitcoin ETF, saw massive outflows last month, selling 7,401 BTC.
Due to the outflow, the Purpose Bitcoin ETF ceded the top spot to the NYSE-listed ProShares Bitcoin Strategy ETF (BITO), which tracks the price of Bitcoin futures.
BITO saw its second-largest net inflow last week since its launch last October, resulting in an increase in the fund’s Bitcoin exposure by the equivalent of 4,115 BTC. Data shows that the fund manages $668 million in assets, equivalent to about 31,500 BTC.
Lunde analyzed in an Arcane Research report that the comparison shows that at least some U.S. investors see the current BTC sell-off as an attractive entry point, taking advantage of forced selling in hopes of profiting from a short-term rally.
In addition to the sale of Bitcoin miners and the liquidation of the financial derivatives market, the liquidity crisis of giant whales in the crypto market is also exacerbating the downside risk of the market, such as crypto asset lending platform Celsius, crypto hedge fund Three Arrows Capital, etc. There is a situation of self-help by selling assets.
According to the data of Glassnode, a blockchain data analysis service provider, in just three days last week, the realized transaction loss caused by selling BTC reached 7.3 billion US dollars. Under such circumstances, mining companies such as Bitfarms are raising funds, Celsius also began to consult lawyers to seek to alleviate the crisis from capital channels, and BlockFi, another encrypted asset lending platform, obtained a repayment credit line of $250 million from the encrypted asset trading platform FTX. funds.
The signals of giant whales outflowing funds and seeking financing indicate that the cold winter in the crypto asset market is not yet in sight.