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Miners and Bitcoin spot exchange funds both sell Bitcoin when the market falls.

Data from blockchain data analysis service provider Glassnode shows that in just three days last week, Bitcoin (BTC) investors suffered the largest actual losses ever (losses realized through transactions) - selling BTC caused investors to lose $7.3 billion. On June 18, the price of BTC hit a new low of $17,700 this year, the first time it has fallen below $20,000 since 2020.

So, who sold BTC during the crypto market downturn?

On June 22, Canadian crypto mining company Bitfarms said it sold 3,000 BTC in the past seven days to balance its debt. The company decided to "no longer hoard" the bitcoin produced by Japan, but chose to take the approach of "increasing liquidity and deleveraging" to optimize the company's balance sheet.

Bitfarms can be considered one of the public miners of Bitcoin, and the falling market is threatening their survival. Data from Arcane Research, a Norway-based research institute, shows that in the first four months of 2022, public mining companies sold 30% of their Bitcoin production. The plunge in mining profitability forced these miners to increase their sales rate to more than 100% of their production in May.

In addition to miners, the world's largest Bitcoin spot exchange-traded fund (Bitcoin spot ETF) is also selling BTC. Arcane Research data shows that the Purpose Bitcoin ETF, which tracks the spot price of Bitcoin, outflowed 24,510 BTC last Friday, which was the worst single-day redemption since the fund debuted on the Canadian Stock Exchange in April 2021. Analysts believe that the huge outflow of funds may be caused by large-scale forced liquidation.

On June 20, BTC returned to above $20,000, and reached $21,500 on the 21st. It is currently hovering around $20,800, and market uncertainty has not been eliminated.

Miners sell Bitcoin to survive

The deterioration in crypto mining profitability has forced public miners to start liquidating their Bitcoin holdings.

On June 21, Bitfarms, the largest crypto mining company in North America, said it had sold 3,000 BTC in the past seven days, accounting for about 47% of the 6,349 BTC it holds. According to the company, it will use about $62 million in sales funds to "reduce its BTC credit line at Galaxy Digital" to rebalance debt. After Bitfarms sold crypto assets including 1,500 BTC, the company's credit line in June was reduced from $100 million to $66 million, and its debt also dropped to $38 million.

According to Bitfarms CFO Jeff Lucas, the company will “no longer hoard” all the Bitcoin it produces each day (about 14 BTC per day), instead choosing to take actions to “improve liquidity and deleverage” to optimize the company’s balance sheet. Bitfarms said it also reached a $37 million equipment financing deal with NYDIG, which keeps the company’s liquidity at about $100 million.

“We believe that selling some of our BTC holdings and daily production as a source of liquidity is the best and cheapest approach in the current market environment,” Lucas said.

As a listed crypto mining company, Bitfarms disclosed the sale of BTC only yesterday. It is not the only public miner that sold BTC. Arcane Crypto data shows that the top 28 public mining companies that contribute about 20% of the computing power to the Bitcoin network sold 4,271 BTC in May, an increase of 329% from the previous month.

Arcane Research data shows that in the first four months of 2022, public mining companies sold 30% of their Bitcoin production. The plunge in mining profitability forced these miners to increase their sales rate to more than 100% of their production in May, and "the situation worsened in June, which means they may sell more."

Bitcoin sales rate by public miners in 2022

Jaran Mellerud, a researcher at the research institute, explained that miners are the only natural net sellers of Bitcoin, and they receive 900 BTC per day. Among them, public miners have very low production costs because they can get cheap electricity and use new energy-saving machines, which means they have no risk of shutting down machines, but lower cash flow will make it difficult for them to obtain financing, which may affect their expansion plans.

"Public miners only account for about 20% of Bitcoin's hash rate, and studying their behavior can hint at what private miners are doing." Jaran Mellerud pointed out that public miners can obtain cash flow by selling most of the mined Bitcoins. They can also maintain a larger share of production by entering the financial market during the bull market, while the situation may be more difficult for private miners with higher production costs. "Miners are the largest whales in the Bitcoin market, holding about 800,000 BTC, of ​​which public miners own 46,000. If they are forced to liquidate a significant portion of these holdings, it may cause the price of Bitcoin to fall further."

The largest Bitcoin spot ETF is experiencing outflows

In addition to miners, BTC dumped into the market also comes from Bitcoin spot exchange funds (Bitcoin spot ETFs).

Arcane Research data showed that last Friday, the world's largest Bitcoin spot ETF "Purpose Bitcoin ETF" outflowed 24,510 BTC, the worst single-day redemption since the fund debuted on the Canadian Stock Exchange in April 2021. The outflow of funds meant that the fund had to sell about $500 million in BTC at Friday's price, adding to the selling pressure in the already shaky cryptocurrency market, the research firm wrote in a report.

Purpose Bitcoin ETF manages 50% of its BTC

Vetle Lunde, a researcher at the agency, analyzed that the huge capital outflow was likely caused by large-scale forced liquidation. "The forced sell-off of 24,000 BTC may be the reason why BTC fell to $17,600 this weekend."

Bitcoin spot ETFs track the value of Bitcoin and provide a way to invest in BTC without directly handling BTC. ETF managers actively add and sell Bitcoin to match investors' investments and redemptions in the fund. These ETFs can be traded on traditional regulated stock exchanges without requiring users to enter a crypto asset trading platform.

Purpose Bitcoin ETF is by far the largest Bitcoin-focused exchange-traded fund, managing nearly 48,000 BTC before Friday's redemptions. Now, the fund holds only about 23,300 BTC. Another similar fund, 3iQ CoinShares Bitcoin ETF, saw a large outflow of funds last month, selling 7,401 BTC.

Due to the outflow of funds, the Purpose Bitcoin ETF lost the top spot to the NYSE-listed ProShares Bitcoin Strategy ETF (BITO), which tracks the price of bitcoin futures.

BITO saw its second-largest net inflow last week since its launch in October, causing the fund’s Bitcoin exposure to grow by the equivalent of 4,115 Bitcoins. The fund manages $668 million in assets, equivalent to about 31,500 BTC, according to data from the fund.

Lunde analyzed in the Arcane Research report that the comparison shows that at least some U.S. investors see the current BTC sell-off as an attractive entry point and are taking advantage of forced selling in order to profit from a short-term rebound.

In addition to the sale of Bitcoin miners and the liquidation of financial derivatives markets, the liquidity crisis of crypto market whales is also exacerbating the risk of a market downturn. Crypto asset lending platform Celsius and crypto hedge fund Three Arrows Capital both sold assets to save themselves last week.

According to data from blockchain data analysis service provider Glassnode, in just three days last week, the realized transaction losses caused by selling BTC reached $7.3 billion. In this situation, mining companies such as Bitfarms are raising funds, Celsius has also begun to consult lawyers to seek capital channels to alleviate the crisis, and another crypto asset lending platform BlockFi has obtained funds from the crypto asset trading platform FTX with a revolving credit line of $250 million.

The signals of whales’ capital outflow and seeking financing indicate that the cold winter in the crypto asset market is still far from over.