Rising Energy Prices: ‘HODL’ Strategy of Bitcoin Miners in Danger?

Bitcoin mining, once known as one of the most profitable businesses, is now going through a rough patch. Amid rising global inflation, increasing energy prices, the crypto winter and a competitive environment, Bitcoin miners are finding it difficult to remain in business.

While some of the lesser-known names have already closed their operations, leading players are forced to sell their BTC assets to keep the operations going. Bitcoin miners, known for their ‘HODL’ strategy, have now started dumping their digital assets. According to the data published by CoinMetrics, Bitcoin miners collectively own approximately 800,000 coins, a number that is 300% more than the collective Bitcoin holdings of MicroStrategy, Tesla, Galaxy Digital and Square.

Electricity prices across the US, home to some of the world’s largest mining companies, have increased sharply in the past few months. The price of Bitcoin, on the other hand, has dropped by almost 70% in the last seven months. These two factors have caused a major drop in the profitability of BTC miners. According to Bitinfocharts, the profitability of Bitcoin miners has slumped by more than 80% since November 2021. During the same period, the network difficulty has climbed substantially.

The recent scenario across the crypto market is making it difficult for leading BTC miners to survive without ‘adjusting’ their ‘HODL’ strategy. Islam Shazhaev, the CEO of OneBoost, said that selling Bitcoin at a loss is still a better option to survive than leaving the crypto mining industry.

“With rising energy costs, crypto miners will typically have to spend more money to keep their rigs online. This creates a challenging situation as many have to put up their BTC holdings for sale to cover costs. Selling their Bitcoin at this time will imply a massive loss on the part of the miners, particularly the older ones considering prices are still trading well below $25,000. Still, it may help them stay in business for as long as the entire industry will cruise back into profitability. With the current situation, miners will rather sell at a loss than quit mining altogether,” Shazhaev said.

In the current scenario, a balanced approach is required by Bitcoin miners to survive the crypto winter, which includes cost-cutting initiatives, a measured reduction in operations and the selling of digital assets to improve liquidity.

“It would be wrong to approach this season like it is ‘business as usual’. Crypto miners can survive this crypto winter provided they will be willing to adhere strictly to cost-cutting measures and adopt proven economic strategies that can help cushion their businesses against the risks inherent in periods of inflation,” Shazhaev explained.

Barnabas Goh, the Chief Marketing Officer at Zonda Global, believes that the reduction in operations will bring the hash rate and mining difficulty down. “As always it’s about achieving a balance that considers profit, people, place and purpose and that is not an easy process by any means, but something we as stewards of the industry and the world need to contend with, and hopefully one day overcome together,” Goh said.

According to the data compiled by Arcane Research, the ‘HODL’ ambitions of BTC miners fell apart in May 2022 as leading players sold almost 100% of their BTC production during the last month.

The recent selling trend and rising global inflation indicate a tough road ahead for prominent Bitcoin miners in the industry. Cost-cutting and a substantial reduction in operations have forced some of the Bitcoin miners to cut jobs. With declining Bitcoin holdings, it will be difficult for small and medium-sized miners to remain operational if the price of BTC stays below $20,000 for a longer period.