Loss of miners and a potential negative spiral for bitcoin: Consequences of the FTX case


The bankruptcy of FTX, which was the third largest cryptocurrency exchange in the world, is affecting the bitcoin and digital asset market. The price drop has squandered what little profitability mining still produces. This could cause a negative spiral for bitcoin sales from the miners’ reserves.

Since the FTX issue appeared in early November, bitcoin Setback of 21,000 USD up to 16,000 USD. It was a decrease of more than 23%.

In June 2022, CriptoNoticias spotted the risk of a potential “negative spiral” in the Bitcoin price, driven down by Terra USD and LUNA coins. How is explained Bitcoin was dangerously close to its cost of production, about $19,000 USD at the time. If it drops below this price, miners will be left with negative returns, resulting in potentially huge sales.

Negative helix indicates the default in which the miners are, Desperate for the price drop, they started selling their bitcoins at a loss. This, in turn, pushes the price of the asset down further, thus spurring further selling.

Now, 5 months later and for reasons other than the fall of Terra and LUNA, the price of every bitcoin has finally fallen below its cost-of-production threshold, according to graphs shown by Glassnode.

There it is noted that miners, in general, since November 10th, have been mining with negative returns.

Glassnode’s difficulty regression model shows an approximate production cost of 1 BTC based on the current mining difficulty. Source: Glassnode.

Bitcoin miners have been pressured into selling

This situation on the Bitcoin price has direct repercussions on the reserves of the two miners. On-chain metrics show that it has already started selling off a portion of the BTC in reserves to cover operating costs from mining farms.

In recent months, miners’ Bitcoin reserves have seen ups and downs, indicating strong selling pressure. Source: TradingView.

The chart above shows how the BTC reserves of all mining pools are declining:

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According to the IntoTheBlock signature graph, on the TradingView platform, miners sold more than 300,000 bitcoins from their reserves, just at the beginning of November. between October and November, Miners’ BTC reserves are at their lowest point. According to this indicator, miners have about 1.9 million bitcoins in reserves.

Also, an indicator that tracks selling pressure (eg, Reflects the amount of bitcoins miners sell, more than the amount of bitcoins mined) It appears that they sell three times more than they produced after the collapse of the FTX exchange.

In the past three days, the selling pressure of the two miners has increased by 394%, indicating that more and more BTC reserves are coming to the market. Source: TradingView.

Charles Edwards, Founder of Capriole Investments, Developer of the Selling Pressure Indicator for Miners, It is considered that the current situation is a “bloodbath”. He commented, “If the price [de bitcoin] If it doesn’t go up anytime soon, we’ll see a lot of bitcoin miners out of work.”

Less profitability, but more miners in the network

Adding to this bear market is the drop in the hash rate, which is the return of 1 TH/s (hash rate expressed in terahashes per second) in one day.

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The retail price at the time of writing is around $0.058. It is at its lowest level since October. The decrease in this value is not only related to the decline in the price of Bitcoin. It also affects the fact that The network hash rate has been on the rise throughout 2022hitting an all-time high in recent days.

Bitcoin hash price between October and November. Source: Hashrate Index.

As more miners connect to the network, this means that it is “harder” to mine bitcoins. This is due to the difficulty of adjustments, a metric which, at the time of writing, is at an all-time high. Such a situation has a direct impact on the profitability of miners. More difficulty means less profit.

Mining equipment such as the S19 j pro, which offers 104 TH/s, and costs over $3,000 USD, offer negative returns (Taking into account the electricity cost of 0.12 kWh which is the average in Texas, USA).

Bitcoin hash rate hit an all-time high of 331 EH/s. Line: CoinWarz.

Since May this year, the hash rate has grown by 40%. It appears that the price drop with the FTX case has had no repercussions on the number of miners.

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As reported by this outlet, miners seem to have developed their own survival strategies, which allow them to stay afloat amid falling prices. Some, for example, continue to mine and hold BTC in hopes of making a profit on the next BTC bull run. Anyway, as seen here, there are many who just can’t resist and end up selling.

Another strategy is to set up mining farms in countries with cheap electricity supply, as is the case in Argentina. The average cost of electricity in Argentina is about 0.02 kWh, 5 times lower than the US average.

Paraguay also presents itself as a “cheap” option for miners, who are looking for the “promised land” to mine cryptocurrency.

We’ll have to wait and see how this story ends and which Bitcoin mining companies manage to stay afloat until the end of this cryptocurrency winter.

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