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

Evidence from Bitcoin’s on-chain data shows that miners are unloading their stocks. The factors contributing to the selling pressure may be the reduction in earnings due to a decrease in Ordinals activity, as well as the highest ever mining difficulty and hash rate.

Glassnode, an on-chain analytics firm, has reported that a substantial quantity of coins have been relocated from miners to exchanges.

Glassnode data reveals that on June 3, Bitcoin (BTC) miners’ deposits to exchanges skyrocketed to a three-year high, similar to what was observed during the 2021 bull market.

Coin Metrics data reveals a drop in the one-hop supply metric of miners, indicating the amount of Bitcoin stored in addresses that are supplied by mining pools has decreased.

Since May 2023, the metric had been showing a steady increase in miner holdings; however, during the second week of June, the miners changed their pattern of acquisition.

Increase in mining difficulty and reduced Ordinals activity

The mining difficulty of Bitcoin, a measure of how hard it is to find a new block on the Bitcoin blockchain network, hit a record high at the beginning of June.

The difficulty of mining Bitcoin is adjusted from time to time to guarantee that new blocks are added to the blockchain, on average, every 10 minutes. Should the network’s computing power increase, the difficulty is recalibrated to make mining more difficult; conversely, if the computation capacity decreases, the difficulty is lowered.

The difficulty is recalibrated every 2,016 blocks, or approximately every two weeks, based on the total hash rate of the network. On May 31, the difficulty saw an increase of 3.39%.

The rise in Bitcoin difficulty diminishes the miners’ profits, diminishing their profitability and potentially augmenting their losses.

Competition among miners has intensified since the last difficulty adjustment, with the hash rate of the network reaching a record high of 381 exahashes per second on June 11. It is expected that the upcoming difficulty adjustment this week will add to the selling pressure.

In May, the Ordinals activity on Bitcoin, which had previously been responsible for a rise in miner revenue, decreased, resulting in lower earnings for miners. The total fees paid for Ordinal inscriptions on Bitcoin fell to a two-month low, and trading volumes on nonfungible token marketplaces followed a similar pattern.

Glassnode data indicates that miners’ seven-day average earnings decreased from a peak of $33.9 million in May to $25.8 million at the beginning of June.

June signalled the commencement of summer, with the high temperatures in the Northern Hemisphere causing some mining farms to incur higher electricity costs.

In 2022, the sweltering summer temperatures forced miners in Texas to suspend their activities. It is said that Texas accounts for approximately 15% of the mining capacity in the United States.

The heatwaves in 2023 could be more severe, resulting in a decrease in the network’s mining hash rate.

Since 2010, Bitcoin miners have earned a total of $50 billion from Bitcoin block rewards and fees.

Identifying miners’ stress levels

At the moment, the cost of mining Bitcoin with existing equipment ranges from $35,532 to $21,244. With Bitcoin’s value remaining above $25,000, the decline in Bitcoin’s mining hash rate may be restricted.

If the situation deteriorates over the summer and the mining cost rises without a corresponding rise in the price of BTC, the industry could enter a state of capitulation, which would be characterized by a sharp increase in BTC selling and a lower network hash rate.

Despite Bitcoin’s hash rate increasing, the hash price metric, which is the value assigned to each unit of hashing power, experienced a substantial decrease in May, indicating a decreased demand for mining hardware.

According to an update from Hashrate Index, the hashprice [PH] has dropped below $70.00/PH/day for the first time since mid-March, after reaching an average of $82.23 per PH per day in May, which is a decrease of 14.8%.

It remains to be seen to what extent the sell-off continues and if Bitcoin Ordinals activity will return in the interim.