Anyone who invested in Bitcoin a year ago today will have seen the value of their investment more than half, with Bitcoin’s price dropping by more than 55% year-to-date. Many factors are weighing in on Bitcoin’s falling value, including struggling Bitcoin miners, who are selling the tokens at discounted prices to help make ends meet.
It seems a lifetime ago that Bitcoin’s price was soaring to previously unseen levels. Investors in the world’s biggest cryptocurrency were laughing all the way to the bank, and crypto experts predicted the value of one Bitcoin was about to break through the $100,000 barrier. The price peaked at $68,789 on November 10, 2021, before closing at $64,995. The price has continued falling ever since.
Bitcoin Is Now Mainstream
Bitcoin has become increasingly mainstream, with major companies accepting the currency for payments. Tesla is the first company that springs to mind, but many others exist, including the online sports betting giant BetOnline. The country of El Salvador went one step further and declared Bitcoin legal tender. El Salvador has ambitious plans for an entire city, Bitcoin City, where the nearby Conchagua volcano’s geothermal energy will provide power for Bitcoin mining and the city’s residents. Those plans may be on hold now that Bitcoin’s value is sliding and showing no signs of slowing down.
Bitcoin miners, the very people creating the currency, could be one of the biggest reasons for the recent price crash. Those are the thoughts of investment giant JPMorgan Chase & Co. A team of JPMorgan strategists, led by Nikolaos Panigirtzoglou, revealed to Bloomberg that some public-listed miners, which account for approximately 20% of the total miners, sold many Bitcoin during May and June to increase liquidity, delever, and meet rising costs.
“Offloading of Bitcoins by miners, in order to meet ongoing costs or to delever, could continue into Q3 if their profitability fails to improve. The offloading has likely already weighed on prices in May and June, though there is a risk that this pressure could continue.”
The offloading of Bitcoins is a double-edged sword for the biggest miners. They must sell to raise funds for ever-increasing costs but selling large amounts lowers the overall price and creates instability in the market.
Major Miners Struggling to Repay Loans
Many major Bitcoin miners have taken huge loans secured on their equipment, equipment whose value is falling. It is estimated the most prominent miners have loaned up to $4 billion, with some struggling to make repayments.
Core Scientific Inc sold 2,000 Bitcoin for approximately $60 million in May alone. Bitfarms Ltd. sold almost half of the Bitcoins it mined in June partly because it owes $100 million to Galaxy Digital Holdings Ltd.
Luke Jankovic is the Head of Lending at Galaxy Digital. He explained one of the reasons miners are struggling right now.
“Bitcoin miners, broadly speaking, are feeling pain. A lot of operations have become net ITT negative at these levels. Machine values have plummeted and are still in price discovery mode, which is compounded by volatile energy prices and limited supply for rack space.”
The falling price of Bitcoin has left many miners in a position where they find it impossible to turn a profit. Many use older purpose-built machines that run 24/7 or live in areas where electricity costs are much higher than they were only a couple of months ago. Electricity is the number one cost when it comes to Bitcoin mining. Estimates from Digiconomist show Bitcoin mining electricity consumption to be down to 131 terawatt-hours per year, equating to Argentina’s annual consumption. In addition, the electricity required to mine a single Bitcoin is the same as what a typical household uses over 50 days.