Miners Selling Reserves Due to Declining Fees
Miners are selling their coin reserves as Bitcoin network fees and mining profitability metrics decline. This trend raises concerns about forced sales by companies competing to validate transactions on the Bitcoin blockchain.
Decline in Transaction Fees
Kaiko analysts, cited by Bloomberg, report that Bitcoin network transaction fees have dropped to $3-5. This is significantly lower than the January peak of $45. The April halving, which reduced the block reward from 6.25 BTC to 3.125 BTC, has pressured miners by lowering their income, making mining less profitable. Costs such as electricity, wages, and rent remain unchanged.
Bitcoin Hashprice Index Near Historic Lows
The Bitcoin Hashprice Index, a key profitability metric, has approached its historical low of 44.7. As of July 3, the indicator stands at 47.7. This means a Bitcoin miner using 1 petahash per second (PH/s) of computing power earns about $47 daily. Luxor Technologies introduced this metric.
Impact of the Fourth Halving
Historically, halving events reduced Bitcoin supply while demand remained steady, leading to scarcity and price increases. However, the fourth halving on April 19, 2024, had opposite results. Bitcoin traded between $70,000 and $63,000 for three months, hitting a local low of $58,000 in June. Post-halving transaction fees spiked to nearly $150 due to a surge in non-fungible token (NFT) activity on the Bitcoin blockchain. However, by June, fees had returned to $3-5.
Miners’ Bitcoin Reserves Declining
Miners’ Bitcoin reserves have steadily decreased as reduced block rewards made mining less profitable. This forces companies to sell part of their BTC reserves to cover costs. In June, miners’ Bitcoin reserves hit their lowest levels since 2021. Between June 9 and 10, over 5,000 BTC ($330 million) was transferred to exchanges, driving Bitcoin’s price down to $66,000. Marathon Digital, a leading US miner, led the sales, offloading 8% of its reserves. Kaiko experts believe companies may need to sell more mined coins to maintain financial stability in the coming months.
Wave of Consolidation
Falling mining profitability is pushing companies towards mergers and acquisitions. Miners aim to “consolidate assets” and “increase efficiency” in response to declining profitability. For example, Riot Platform attempted a hostile takeover of competitor Bitfarm, while CleanSpark agreed to purchase Griid Infrastructure for $155 million last month.
Consolidation’s Role in the Market
Kaiko experts suggest that consolidation will be a key factor in shaping the cryptocurrency market amid declining mining profitability.
