Bitcoin on-chain data shows miners offloading BTC as revenues shrink

Bitcoin on-chain data shows miners offloading BTC as revenues shrink

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Bitcoin on-chain data provides evidence that Bitcoin miners are dumping their holdings. Factors influencing selling pressure could be reduced profits from a cooldown in Ordinals activity, as well as mining difficulty and hash rate hitting an all-time high.

According to on-chain analytics firm Glassnode, “miners have been sending a significant amount of coins to exchanges.”

Glassnode data shows Bitcoin (BTC) Miner inflows to exchanges soared to a three-year high on June 3 at levels last seen during the early 2021 bull market.

The Coin Metrics data also shows a decline in miners’ single-hop supply metric, which measures the amount of Bitcoin stored at addresses that receive coins from mining pools.

The metric recorded a steady uptrend in mining shares since May 2023; however, miners reversed their accumulation trend in the second week of June.

Supply of a jump of Bitcoin miners. Source: Coin Metrics

Increased mining difficulty and reduced ordinal activity.

Bitcoin mining difficulty, which refers to a measure of how difficult it is to find a new block on the Bitcoin blockchain network, reached an all-time high in early June.

Bitcoin’s difficulty is adjusted periodically to ensure new blocks are added to the blockchain approximately every 10 minutes on average. When the computing capacity of the network increases, it readjusts to make mining more difficult and vice versa.

The difficulty is adjusted every 2016 blocks, which is roughly every two weeks, and is based on the total computing power, or hash rate, of the network. The last adjustment occurred on May 31, with a 3.39% increase in total difficulty.

Bitcoin mining difficulty. Source: Blockchain.com

Increasing the difficulty of Bitcoin reduces miners’ profits, reduces their profitability, and possibly increases their losses.

Additionally, competition among miners has increased since the last difficulty adjustment, with the network hash rate rising to a new all-time high of 381 exhashes per second on June 11. The next difficulty adjustment due this week will likely add to the selling pressure. .

The activity of Bitcoin Ordinals, which was responsible for a increase in mining revenue, declined in May, leading to reduced profits for miners. The total fees paid for ordinal signups in Bitcoin abandonment to a two-month low, with trading volumes in non-fungible token markets showing a similar trend.

Miners’ seven-day average earnings, according to Glassnode data, fell from a high of $33.9 million in May to $25.8 million in early June.

The 7-day moving average of Bitcoin mining revenue (orange) and the price of BTC (black). Source: Glassnode

June also marked the start of summer, with warm temperatures in the northern hemisphere imposing a significant burden on some mining farms due to the rising cost of electricity.

In 2022, summer heat waves caused Texas miners to temporarily close operations. Texas reportedly accounts for about 15% of mining capacity in the U.S.

Heat waves could worsen in 2023, causing the network mining hash rate to drop.

Related: Bitcoin miners have earned $50 billion in BTC block rewards, fees since 2010

Identify the stress levels of miners

Currently, the cost of producing Bitcoin for existing mining hardware ranges from $35,532 to $21,244. With the price of Bitcoin with more than $25,000the downward trend in the Bitcoin mining hash rate could be limited.

However, if the situation worsens over the summer and the cost of mining increases without a commensurate increase in the price of BTC, the industry could slip back into capitulation mode, marked by an accelerated sale of BTC and a rate of reduced network hash.

Bitcoin price chart with production cost indicator. Source: TradingView

Additionally, while Bitcoin’s hash rate has continued to rise, Bitcoin’s hash price metric (the market value assigned per unit of hashing power) declined significantly in May, suggesting cooling demand for hardware. mining.

According to an update of the Hashrate Index, the “hashprice [PH] is back below $70.00/PH/day for the first time since mid-March” after touching an average of $82.23/PH/day in May, a 14.8% decline.

It remains to be seen how far the selloff extends and whether or not Bitcoin Ordinals activity returns in the meantime.