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Bitcoin Miner Liquidations Threaten Bitcoin’s Recovery

Bitcoin mining profitability has been dropping along with the market decline. The cash flow from the mining rigs has become increasingly stunted over time, causing bitcoin miners to begin selling their holdings to cover the cost of their operations. But even as this rages on, there is a bigger issue that could threaten the recovery that BTC has made so far, which is the fact that larger miners may be forced to liquidate their holdings.

Bitcoin Miners Can’t Meet Up

Usually, bitcoin miners are known for holding the coins that they realize from their activities. Since miners are not buying the coins in the first place, it makes them the natural net sellers of bitcoin. However, their tendency to hold these coins has often seen them having to offload their bags onto suffering markets. So instead of actually selling in a bull, they tend to hold until the bull market is over and with profitability down in a bear market, are forced to sell coins to finance their operations.

Related Reading | Bitcoin Recovery Wades Off Celsius Liquidation, But For How Long?

The same is the scenario that is currently playing out in the market. With bitcoin more than 70% down from its all-time high value, miners are nowhere close to as profitable as they were back in November 2021. In the first four months of 2022, it is reported that public mining companies have had to offload about 30% of their BTC gotta from mining. This meant that the miners were having to sell more BTC than they were producing in the month of May.

Given that the market in May was significantly better than in June, it is expected that the miners would have to ramp up selling. This would likely see miners selling all of their BTC production for the month alongside the BTC that they already held prior to 2022.

BTC miners selling off holdings | Source: Arcane Research
Implications Of A Sell-Off

It is important to note that bitcoin miners are some of the largest bitcoin whales in the space. This means that their holdings have the potential of being a major market mover when dumped at the same time. These miners hold as large as 800,000 BTC collectively with public miners accounting for just 46,000 BTC of that number. 

What this means is that if bitcoin miners are pushed to the wall where it triggers a mass sell-off, the price of the digital asset would have a hard time holding up against it. The massive sell-side pressure it would create would push the price further down, likely being the event that would see it touch its eventual bottom.

Declining prices forcing miners to selling BTC | Source: BTCUSD on TradingView.com

The behaviors of the public miners can often help point to if a massive sell-off is imminent. These public companies only account for about 20% of all bitcoin mining hashrate but if they are forced to sell, then it is likely that private miners are being forced to sell. 

Related Reading | Gold Proves To Be A Safe Haven Asset Amid Bitcoin Crash

Short-term recovery on the part of bitcoin can push back this sell-off. However, it will only be a short-lived reprieve as energy costs are constant and some machines, namely the Antminer S9, have now become cash-flow negative. To survive the bear market, miners would simply have no choice but to dump some BTC to weather the storm.

Featured image from Newsweek, charts from Arcane Research and TradingView.com

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Bitcoin Should Not Be Measured In Dollar Terms, Says Pompliano

The value of bitcoin is currently being measured in dollar terms and this is understandable given that fiat is still the most dominant form of currency. While those in the crypto space believe this will not continue for much longer, it is still important to price the digital asset in fiat currency to show its value to investors.

However, millionaire investor Anthony Pompliano has countered against this accepted form of valuing bitcoin. He addressed the way the digital asset is valued as well as the dreaded volatility on a recent episode of CNBC’s Squawk Box.

Don’t Value Bitcoin In Dollars

Presently, one bitcoin is trading for around $51K. This apparent value is derived from the dollar, which confers a fiat value upon an asset that was created to replace it. Pompliano says that this should not be so. Instead, bitcoin should be priced in bitcoin. This way, “one Bitcoin still equals one Bitcoin,” says the investor.

Related Reading | Billionaire Ricardo Salinas: Forget Fiat, Buy Bitcoin Bitcoin Instead

Bitcoin’s value, when gauged in bitcoin, does not really change. The deflationary asset was designed in a way that it appreciates in value over time rather than depreciate, as is the case with the dollar.

However, Pompliano notes that people ignore or overlook this part because they are so used to using dollars in their everyday lives. Bitcoin was never really meant to be priced in dollars as the issues that already plague the fiat currency could then translate onto the asset, for example, its volatility.

“The dollar itself is hyper volatile as well,” said Pompliano. “We just don’t think of that because all of the goods and services around us are priced in dollars.”

BTC continues downtrend | BTCUSD on TradingView.com
Volatility Is Good When It Favors You

Speaking to host Joe Kernen, Pompliano revealed his thoughts around the volatility that is one of the hallmarks of bitcoin. Said volatility has been one of the most mentioned reasons when prominent figures and governments have advised investors to steer clear of the digital asset, explaining that they are prone to losses due to the widely fluctuating nature of the prices.

Related Reading | Why Bitcoin Will Never Surpass The Market Cap Of Gold

Pompliano however does not see bitcoin’s volatility to be a bad thing. He explained that volatility is mainly a matter of how it affects an investor. An example of this is when a digital asset’s price swings upwards and the investor realizes gains from this move. In this scenario, they would accept volatility as being a good thing. But if the opposite happens, then it would be regarded as a bad thing.

“Volatility is not good or bad, right? Basically, volatility is only bad when it goes against you, so if you long an asset and it goes down you don’t like volatility, if you long an asset and it goes up, you do like volatility.”

The millionaire also pointed out that another issue was that bitcoin’s volatility was also being mentioned in dollars. Given the latter’s also volatile and depreciating nature, Pompliano said that it was a flawed way of measuring volatility.

Featured image from CoinDesk, chart from TradingView.com

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Bitcoin New All-Time Cleared, $100,000 Straight Ahead?

Bitcoin has now set a new all-time high above $67K, a price range that one would have thought impossible when the market slowed to a crawl in September. Investors across the market are back in the green after enduring a brutal month and sentiment could not be more positive. This has translated to more faith in the market as more money flows into crypto.

However, hitting a new all-time high does not mean that the market stops moving. If anything, times like these are crucial for the digital asset in the long term as the market could go either way. With this in mind, Coindesk talked to market analysts to get a feel for where they see the price of the digital asset going from here. The responses were insightful, as well as bullish all around for the cryptocurrency.

Full Speed Straight Ahead

The market analysts told Coindesk that they expected the rally to continue. With bitcoin being so high, they did not see any reason why it should slow down now. It has long been speculated that the price of the digital asset is going hit the $100K mark by the end of the year and the analysts have echoed this sentiment.

Related Reading | Blockchain Firm Chainalysis Is Adding Bitcoin To Its Balance Sheet

Market analyst Ben Caselin said that the digital asset will touch this price point by the end of the year. However, he also believes that bitcoin will surge past this point given the volume of the retail money that will be pumped into the market. “All eyes are set on the $100K mark,” Caselin said. “But when retail does rush in and more funds open up to bitcoin, including physically backed ETFs, $100K is unlikely to be the end of it.”

BTC recovers after flash crash | Source: BTCUSD on TradingView.com

Price forecasts for the leading cryptocurrency have not tapered off. The break of the new all-time high has instead fueled further predictions for the asset. CEO of Fundstrat Tom Lee told CNBC that bitcoin could go as high as $168K by the end of 2021.

Other Analysts Chime In On Bitcoin

While the majority of the analysts showed a bullish stance on bitcoin, some have gone the opposite direction. BTC’s energy usage has been a cause for concern in the market and Edward Moya, Senior Market Analyst at Oanda, says that soaring oil & gas prices could see Bitcoin’s energy usage brought under increased scrutiny over the next few months.

“Governments might take harsh stances if this winter leads to shortfalls in energy across several countries and that could mess with the hashrate,” said Moya. This stance makes sense when we take a look at where the majority of the hashrate comes from presently.

Related Reading | Bitcoin Leads Charge Of Large Cap Altcoin Dominance In October

Data shows that North America now has the highest hashrate after miners were forced to exit out of China during the crackdown. With winter approaching and the populace requiring more power for heating, BTC’s energy usage will likely be queried. But given states’ stance on crypto over the last couple of months, this will not be much of a problem for the crypto.

Featured image from Finextra Research, chart from TradingView.com