The Age of Crypto Miner HODLing May Be Over
During the bull run, crypto miners were known for their HODL strategies, which involved hoarding large quantities of bitcoin and waiting for the price to rise. However, the days of extreme bitcoin hoarding might be coming to an end as many miners are now opting to sell their assets.
One reason for this shift in strategy among miners is the changing economic landscape of the cryptocurrency world. Louise Abbott, a crypto-focused partner at Keystone Law, explained that in the current state of the market, “most will want to hold onto what they can afford to keep their valuation high for shareholders, but others will need to sell to survive the new economic crypto world we are now in.”
The new economic world for crypto miners is characterized by higher operational costs, increased energy prices, and an impending global recession. This has resulted in a shake-up in the industry, with many miners being forced to sell their accumulated assets in order to stay afloat.
Andy Long, CEO of crypto mining firm White Rock Management, said, “The triple effect of ramping network difficulty, fiat price bear market, and a global energy crisis in 2022 combined to make conditions tougher for miners than they have been for a long time. Miners with excess leverage could not sustain their interest payments.”
Nishant Sharma, founder of bitcoin mining research and consulting firm BlocksBridge, added that many miners took on an unhealthy amount of debt to buy more machines with long lead times as they continued to hold mined bitcoins during the bull market of 2021. “This not only diluted their shares but also left a large number of them with unpayable debt, a large number of bitcoins purchased at a very high premium, and new machines without the ability to energize those machines after the bull cycle had ended,” he explained.
As the ability to raise capital through debt or equity markets becomes more limited, miners may be forced to sell their bitcoin holdings even if they don’t want to. Abbott noted, “Miners don’t want to sell at a price below the cost of production, but sitting on large stashes of bitcoin gives miners the option to sell in times of need. I believe we will see a lot more of this.”
Riot Platforms, a Texas-focused miner, recently sold 600 of the 639 bitcoins it mined last month, generating net proceeds of around $17.6 million. Marathon Digital, another large miner, chose to sell 600 bitcoins of its 702 BTC self-mining total during the month. Additionally, CleanSpark, Cipher Mining, and Bitfarms have all seen reductions in the number of bitcoins sold during April compared to the previous month.
There is a view, however, that the era of miners utilizing a HODL strategy is far from over. Rather, it may simply be in a temporary period of hiatus. Long said, “The nature of the market is cyclical, and in low hash price periods, many miners have to dip into reserves to either cover operating expenses or invest in new facilities or hardware. When the bull market accelerates, likely slowly at first and rapidly some months after the [bitcoin halving], then we will see many miners maximizing their HODL again.”
Even if miners return to a HODL strategy in the future, it is clear that the current state of the industry places increased financial pressure on miners to sell their bitcoin holdings. As the market continues to evolve, it remains to be seen to what extent miners will continue to HODL or opt to sell their bitcoins in order to survive the challenging cryptocurrency landscape.
