Bitcoin Miners Fight for Survival as Crypto Winter Deepens  

Key Insights:

  • Public BTC mining companies are still selling their stashes.
  • Those with the lowest production costs and debts will likely survive.
  • Many mining firms will be forced to sell their hardware to others. 

Bitcoin miners have been liquidating their assets over the past couple of months, with exchange inflows steadily increasing, according to data from MacroHive. This has added to the downward pressure on BTC and crypto markets, resulting in the asset falling 74% from its all-time high to just below $18,000 on June 19.

Analysis from Arcane Research revealed that several publically listed mining companies sold 100% of their entire output in May, according to Reuters.

“The conditions have worsened in June, meaning they are likely selling even more,” added Arcane analyst Jaran Mellerud.

Joe Burnett, an analyst at Bitcoin mining firm Blockware Solutions, told the outlet that conditions have worsened for miners over the past six months. Difficulty and hash rate (network computing power) have increased along with energy prices, while BTC prices have fallen over the same period. “These are both negatives for existing miners as both work to compress margins,” he added.

Several publically listed mining firms, including Bitfarms (BITF), Riot Blockchain (RIOT), and Core Scientific (CORZ), have already announced sales, but Marathon Digital (MARA) has yet to offload any.

Survival of the Fittest

On June 27, Mellerud posted his research into public miner cash flows and balance sheets to determine which ones are likely to survive the crypto winter. Direct BTC production cost impacts a miner’s operating cash flow, which ultimately determines when they are forced to power down machines; he noted before reporting:

“Stronghold and Argo have the lowest direct Bitcoin production costs, while Bitfarms and Hut 8 have the highest.”

Those with the more substantial operating cash flows, such as Core Scientific and Riot, are best positioned to pay upcoming expenses, such as debts and machine deliveries. Many, such as Marathon, also have hundreds of millions in cash outflows for machine repayments this year. However, Marathon does have a healthy balance sheet, he added.

A liquidity squeeze will force some miners to sell off some of their assets which could be good for others in better positions.

“In the midst of every crisis lies great opportunity, as the best-capitalized miners can buy the struggling miners’ assets cheaply.”

Mellerud concluded that Argo Blockchain was in the best position to survive while Marathon may be forced to liquidate their BTC or sell those upcoming machine orders.

Bitcoin Market Bottom

The slump below $18,000 earlier this month is the first time in any crypto bear market that Bitcoin prices have fallen below their previous cycle peak.

Bitcoin is currently trading below key technical indicators, which could signify that markets are close to the bottom. Earlier this week, Glassnode analysts noted that BTC was trading below several models “which have coalesced around bear market floors in the past,”

Markets may be close to the bottom, but if previous cycles are anything to go by, they’re likely to stay there for some time yet especially if the macro-economic situation is slow to improve.

Marathon Digital Announces Move Away from Coal-Powered Mining Site

Key Insights:

  • Crypto mining shop Marathon Digital announces move out of Montana coal-powered mining site.
  • Increased government scrutiny on proof-of-work mining and its impact on the environment has forced U.S miners to consider sustainable power.
  • Whether a material shift to renewable energy is enough for Bitcoin miners remains to be seen.

Crypto mining has been one of the hot topics of the year, with governments and agencies raising red flags over the impact of proof-of-work mining on the environment.

Since China’s decision to ban crypto mining, the U.S is the largest Bitcoin (BTC) mining nation, according to the Cambridge Centre for Alternative Finance.

With greater scrutiny over crypto mining, pressure is building on mining companies to move to sustainable energy sources.

Marathon Digital Moves Out of Coal Powered Site in Montana

This week, Bitcoin mining was back in the news. On Tuesday, Marathon Digital Holdings (MARA) announced plans to relocate its Hardin, Montana, Bitcoin mining operations away from carbon-emitting power sources.

Marathon is one of North America’s leading Bitcoin mining companies. With the U.S accounting for 35.4% of the global Bitcoin hashrate as of August-2021, Marathon’s carbon-neutral goals will be positive for the U.S mining community.

In 2021, Marathon announced that its mining operations would be 100% carbon neutral by 2022 end.

The transition away from a coal-fired power source to new locations with more sustainable sources of power is in line with the company’s carbon-neutral ambitions.

Marathon Chairman and CEO Fred Thiel said,

“Marathon made a commitment for our mining operations to be 100% carbon neutral by the end of 2022.”

Thiel added,

“To achieve that goal, we have endeavoured to ensure our miners are sustainably powered as possible. With the majority of our fleet already scheduled to be deployed at renewable power facilities and deployments currently underway, we believe it is an appropriate time to transition our legacy operations away from fossil fuel generation towards more sustainable sources of power.”

Lawmaker Scrutiny over Proof-of-Work Mining Likely to Persist

In March, EU lawmakers voted on the EU’s crypto regulatory framework, Markets in Crypto Assets (MiCA).

Despite calls for a ban on Proof-of-Work mining, lawmakers voted against banning Proof-of-Work mining, which would have resulted in the banning of Bitcoin (BTC) and Ethereum (ETH).

The March vote followed a U.S Congress sub-committee hearing on crypto mining back in January.

For the U.S government, Joe Biden’s target to achieve a 50-52% reduction from 2005 levels in economy-wide net greenhouse gas pollution in 2030 has put Bitcoin mining in the spotlight.

A move by crypto mining companies towards sustainable energy sources would take the pressure off. Such a shift would place the focus back on other non-carbon neutral industries.

In February, FX Empire reported on new CO2 emission numbers that brought into question the numbers circulated during the sub-committee hearing on Capitol Hill.

Some key numbers from a CoinShares paper titled “The Bitcoin Mining Network, Energy and Carbon Impact” included,

  • The Bitcoin mining network emitted 39 Mt of CO2 in 2021. Mining accounted for less than 0.08% of a global total of 49,360 Mt of CO2 emissions.
  • The global banking system emits approximately 130 Mt of CO2 emissions each year.

Also well above Bitcoin mining emissions are reportedly emissions from the gold industry. The gold industry generates between 100 and 145 Mt of CO2 annually.

 

Here’s Where Bitcoin Could Go While The Wyckoff Accumulation Pattern Is Unfolding

The downtrend of Bitcoin (BTC) started in November 2021 as an up thrust (e.g. false breakout) followed by a marking down until a Wyckoff change of character (this concept is applicable in Gold and crude oil as explained in the video) showed up in late January 2022. The change of character was the biggest up wave, broke out from the down channel, which stopped the downtrend into a trading range.

Bitcoin’s Wyckoff Accumulation Pattern Explained

Within the trading range between 33000-45500, the pullbacks of Bitcoin in February and March 2022 were accompanied by increasing of supply. Despite the excessive supply, Bitcoin formed a higher low suggested supply absorption according to Wyckoff’s law – efforts vs results, where increasing of supply (effort) fails to generate a meaningful downward result. Refer to the chart below:

It was worth to note that the test of the reaction in March formed a slightly higher low with decreasing of supply, which was considered as a successful test. A rally could be anticipated after the test with decreasing of supply.

The rally of Bitcoin started on 14 March 2022 broke above the resistance level 45530 followed by a backup action (BU) testing the axis line (unfolding now) where the previous resistance-turned-support. The rally could be classified as a sign of strength rally (SOS) when the backup action (BU) can commit above 44000, which was where the breakout initiated.

Since the backup action is still on-going, it is essential to considered the bullish case when the Wyckoff accumulation pattern is completed for Bitcoin and also the failure case.

Should Bitcoin break above 48000, it is likely to test the upper target near 54000, which is the level where the breakdown happened on 4 December 2021.

Although the tell-tale signs above point to a bullish bias for Bitcoin, it is essential to consider how the accumulation pattern will be violated. In order to maintain the bullish accumulation pattern, Bitcoin is to commit above 44000. Should Bitcoin break below this support level at 44000 with increasing supply followed by inability to rally back above, Bitcoin could test the immediate support level at 42500 followed by 38000.

Should a failure happen, the characteristics of the price action such as the price spread, velocity together with the volume are to be analysed using Wyckoff trading strategy as discussed in the video in order to derive the direction bias of Bitcoin.

4 Outperforming Bitcoin And Crypto Stocks For Swing Trading

Instead of trading or investing in Bitcoin, there are many Bitcoin and Crypto related stocks suitable for swing trading while taking advantage of the strength in Bitcoin. Refer to the chart of Silvergate Capital (SI), MicroStrategy (MSTR), Riot BlockChain (RIOT), Marathon Digital Holdings (MARA) below:

The trend for these 4 stocks is very similar to Bitcoin as they track the performance of Bitcoin closely. SI outperforms the rest as the current backup action is still a lot higher above the axis line (resistance-turned-support) followed by MSTR and RIOT, which are currently testing the axis line. MARA failed to break above the resistance, which is considered a laggard among the 4 stocks.

When the Wyckoff accumulation pattern for Bitcoin is completed, these 4 Bitcoin-related stocks are expected to start the markup phase to test higher price targets. Visit TradePrecise.com to get more stock market insights in email for free.