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 bitcoins 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.
“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 bitcoin reserves, what miners produce, can be very expensive. As other types of financing became less available, the companies had to sell off 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.
“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.
Even though the writing was on the wall for miners selling off their holdings, timing the sale is crucial to maximize the benefit.
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 bitcoins in January of this year to cover its operating expenses.
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.
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?”
