Bitcoin Miners Debunk Capitulation Theories: Are Analyst Price Predictions Wrong?

Is the crypto market on edge because Bitcoin miners are selling their rewards? For years, analysts and crypto-Twitter have watched Bitcoin miners’ wallets like hawks. The theory? When miners move their freshly mined Bitcoin to exchanges, it’s a red flag – a sign of potential sell pressure and maybe even miner distress. But, is this old playbook still relevant in today’s evolving crypto landscape?

According to the traditional view, increased Bitcoin miner outflows to exchanges signal impending price drops, suggesting miners are under financial strain or losing faith in future price appreciation. However, several publicly listed Bitcoin mining companies challenged this very notion at the recent Bitmain World Digital Mining Summit (WDMS) in Hong Kong. Let’s dive into what they had to say.

The “Hodl” Strategy Backfired: A Lesson Learned?

Jeff Pratt from Core Scientific, a major player in the Bitcoin mining space, openly discussed their past strategy and the shift they’ve made. He pointed out a crucial lesson learned from the previous bull run:

“Core Scientific might be the poster child for the hodl strategy. We built a 10,000 Bitcoin hoard, and we rode it up to the top, and then it led to some financial struggles that we are trying to emerge from now. So, what we’re doing today, we sell our Bitcoin production each day.”

Pratt emphasized the new priorities for miners in the current market, focusing on:

• Cost Efficiency: Finding ways to reduce operational expenses.
• Operational Efficiency: Optimizing mining processes to maximize output.
• Financial Innovation: Exploring new financial tools to stabilize profitability, like treasury management and power programs.

“I think it goes back to those three things: How and where can you drive costs out, how and where do you drive efficiency up, and what are the new financial innovations that you can bring to your treasury or to your power programs to basically stabilize your overall companies’ profitability.”

Selling Bitcoin Daily: The New Normal for Miners?

The sentiment shared by Core Scientific wasn’t an isolated case. Taylor Monnig of CleanSpark and Will Roberts of Iris Energy echoed similar strategies, confirming that selling mined Bitcoin is now a common practice for them.

Monnig highlighted CleanSpark’s proactive approach during the last bull market, a strategy that was initially met with skepticism:

“CleanSpark’s strategy was wildly different, right? So we were very conservative during the bull market, and we got a lot of grief for that,” Monnig said. “We sold Bitcoin all the way at the top at $60K, and we got a lot of grief for that as well. But, I think everybody has kinda seen our strategy pay off this year with the expansion that we’ve taken to 9.5 exahashes, and now we’re starting to increase our hold, as you guys have probably seen over the last couple of months now that Bitcoin price is at a much lower rate.”

CleanSpark’s strategy emphasizes building and expanding during bear markets, positioning themselves for future growth. Monnig believes this approach will become more widespread among miners:

“We took a lot more conservative approach in the bull market. Building in the bear has been the motto inside our company, and I think we will continue to expand on that. I think people learned a lot over the last market cycle, and I think the CleanSpark strategy will be adopted by a lot of the other miners moving forward.”

Will Roberts from Iris Energy further solidified this perspective, emphasizing the fundamental difference between mining operations and Bitcoin investment:

“We’ve sold all our Bitcoin daily since we started mining. I mean, our view of this is mining Bitcoin and operating data centers is a very different business model to investing in an asset like Bitcoin. We’re in the business of generating shareholder value. What we’re good at is operating data centers, generating cash flows for investors.”

For Iris Energy, selling Bitcoin immediately is a strategic move to generate more value in the long run, allowing for reinvestment and potential shareholder returns:

“Our view is that we can actually generate more value by selling a Bitcoin today and earning that Bitcoin, plus some back in the future, and we’ve got the opportunity and the expansion capabilities to do that, or at some stage in the future potentially paying out a dividend, whether it’s cash or Bitcoin.”

Nazar Khan of TeraWulf echoed the sentiment, highlighting the shift in market dynamics since the last bull run:

“The last bull market seems like two lifetimes ago. So any approaches that we had then I think are long gone, and we’ve kinda tweaked and modified where we’re at.”

TeraWulf views themselves as energy converters, focusing on operational efficiency and consistent revenue generation:

“Similar to some of the other folks here, we’ve been selling every Bitcoin that we produce, and fundamentally we at TeraWulf think we’re a converter. We’re taking a kilowatt hour of power, running it through the wonderful ASICs that Bitmain makes and producing hash on the back end. Every single day, how we judge this is how efficient we are in that conversion process. We tell our investors that we’re converters and measure us on how efficient we are in that conversion process and that means we monetize every Bitcoin we sell on a daily basis.”

Are On-Chain Analysts Missing the Point?

So, if major miners are consistently selling their Bitcoin, does that invalidate the traditional on-chain analysis methods? When Charles Edward’s hash ribbons indicator was mentioned, Nazar Khan offered a candid perspective on the challenges of crypto analysis:

“I think that the business of being an analyst is an extremely difficult one because, by definition, you’re probably wrong. Besides that, I think that historically, that might have been a good measure. Historically, when we were recognizing margins of 80%-plus, there wasn’t a need to sell. You didn’t need to monetize every Bitcoin that was produced.”

Khan argued that the current market realities have changed, especially for publicly listed miners who need to fund growth and operations in tighter capital markets:

“I think as we look at most of the companies today, given our growth plans that we have, the only source of income that we have is the margins that we have by mining Bitcoin or raising incremental capital, and the capital markets we use to grow our businesses have been tight the last couple of years,” Khan added.

“Therefore, I think, at least for the publicly listed miners, looking at their Bitcoin selling strategies is not necessarily a direct indicator of capitulation or distress — it’s more of how does that fit into where they sit today and where their growth plans are for tomorrow and how does that meet their capital needs.”

Kevin Zhong from Foundry, further supported this view, emphasizing the need for miners to be proactive and strategic in their financial planning, especially with the upcoming Bitcoin halving in mind.

“The ideal scenario is to rely on our hopium that Bitcoin does go up and that our woes go away on their own, it’s not guaranteed. The economic incentives of Bitcoin going alone may not be there or may come 6 months or 12 months after the halving. In that scenario, you’ve got to get really creative. What do we do with block space, how do we drive fees up. What other ways are there to subsidize ourselves and subsidize miners. You also have to be very critical and strategic with what you do with the Bitcoin that you mine. Are you hedging it out, are you doing covered calls? What are your treasury plans? If you have a bullish outlook on Bitcoin are you going to be liquidating all of it or holding on to some of it. It requires a lot of stratification and models, endless models.”

Key Takeaways: Rethinking Miner Selling Signals

So, what does this all mean for interpreting Bitcoin miner activity? Here are some key takeaways:

• Miner Selling is Now Strategic: For publicly listed miners, selling Bitcoin is often a planned business strategy for operational funding, growth, and shareholder value, not necessarily a sign of distress or capitulation.
• Outdated Metrics?: Traditional on-chain metrics solely based on miner outflows might not accurately reflect the current market dynamics and miners’ sophisticated financial strategies.
• Focus on Business Fundamentals: Miners are now heavily focused on efficiency, cost management, and diversifying revenue streams, moving beyond simply holding mined Bitcoin.
• Halving is a Major Factor: Miners are actively preparing for the upcoming Bitcoin halving, exploring new revenue opportunities like block space and transaction fees, and strategically managing their Bitcoin holdings.

Don’t Jump to Conclusions!

The next time you see headlines about Bitcoin miners sending BTC to exchanges, remember to look beyond the surface. While miner activity remains an important aspect of the Bitcoin ecosystem, interpreting it requires a nuanced understanding of the evolving business models of mining companies and the broader market context. The days of simple on-chain metrics telling the whole story might be behind us.

Want to hear the full discussion? Check out the WDMS panel here to delve deeper into Bitcoin miners’ strategies, renewable energy adoption, and their perspectives on the upcoming halving.