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Miners and Mining Firms Feel the Strain as BTC Loses Ground Above $21K

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The price of Bitcoin printed a flashy red candle on Monday, falling by over $500 in less than an hour as the market reacted to remarks from the Securities and Exchange Commission chairman Gary Gensler. Gensler, in an interview with CNBC, asserted that the regulator considers Bitcoin and several other tokens to be a commodity.

BTC/USD 24-hr trading chart

The SEC boss also suggested that the commission is not convinced a spot Bitcoin ETF offering is suitable for the market. As such, it doesn’t intend to give a green light on any filed applications proposing the launch of such an ETF. Gensler’s statements triggered a selloff in the Bitcoin market, leading to a sharp but shallow plunge in BTC price.

10K+ BTC holder addresses break above 100

The prevailing bear market has left many investors in a dilemma on whether and when to buy or sell. Recent on-chain data by Glassnode shows that for one group of Bitcoin holders, it is time to buy. The analytics firm shared on Twitter over the weekend that the number of the so-called whale addresses has surpassed 100, indicating an increased appetite to buy the market-leading digital asset.

Glassnode observed that whales are taking advantage of the market downturn to cop BTC at a discount, and this trend could persist if the markets continue teasing a breakout upwards. Further indicative of this aggressive purchase strategy adopted by the biggest holders is that the volume of crypto wallets having between 10 and 10,000 Bitcoin has increased over the last two weeks. Those with more than 10,000 BTC have increased since February of this year.

JPMorgan says increased miner sales will hold back Bitcoin prices

Crypto miners are feeling the pain of the bear market as they have struggled to contend with the low market prices while still seeking to retain profitability.

Bloomberg reported on Saturday that the majority have been relinquishing their equipment to mitigate the pressure caused by said bearish market prices. In a note to investors, JPMorgan’s Nikolaos Panigirtzoglou and other strategists established that publicly listed mining entities account for 20% of all the miner sales completed in May and June.

Their analysis also established that the picture might be similar in the private space. The analysts highlighted that private mining facilities have limited access to capital markets, which means they could have sold more Bitcoin than their public counterparts to meet costs and position themselves better in terms of liquidity and deleverage.

They predicted that if profitability fails to improve this quarter, the strategy to sell rather than hold onto block rewards will likely continue. This will likely exert pressure on the price of leading crypto.

A bit of a silver lining

On the flip side of the coin, this increased appetite to sell has led to a drop in the overall cost incurred to mine on BTC. From the $18,000 – $20,000 range in the first few months this year, the cost has fallen to $15,000 in June. This is primarily due to a decrease in the hashrate and mining difficulty on the Bitcoin network.

However, the cost is relative as the size of the miner in use also plays an influence. Arcane Research approximates a cost of $8,000 to mint one BTC token, while Securitize Capital says some miners incur even greater than a total of $20,000 when including overhead and interest.

Nearly $4 billion Bitcoin miner-backed loans are going underwater

The effect of the market burn on miners has also been apparent, as reflected by the current state of the loans they had backed with their equipment. Bloomberg reported on Friday that crypto lenders could be at significant risk as the extended bear market is making it increasingly difficult for miners to pay back up to $4 billion in loans that are collateralized by their equipment.

The fall in the value of Bitcoin has resulted in a concurrent plunge in the value of mining rigs. The latter have lost as much as half their value from their price when used as collateral, further pushing the loans underwater.

While not many have defaulted on their loans, signs of weakness are already showing. For instance, Bitfarms sold about half of its total minted BTC to cover part of its $100 million loan obligation to Galaxy Digital, marking the end of the Argentinian firm’s HODL strategy. The Canadian Bitcoin mining firm isn’t the only one to be affected. Core Scientific also relinquished 2000 BTC last month to meet its cost of operation.

To learn more about Bitcoin visit our Investing in Bitcoin guide.

Sam is a financial content specialist with a keen interest in the blockchain space. He has worked with several firms and media outlets in the Finance and Cybersecurity fields.

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