Bitcoin Miners Begin to Feel Pressure of Lower Token Rewards, Kaiko Says

David Pan, Bloomberg News

Source: Kaiko , via Bloomberg

(Bloomberg) -- More selling pressure in the cryptocurrency market is likely on the horizon as Bitcoin miners with large holdings of the digital asset face a sharp drop in revenue, according to researcher Kaiko.

The main source of revenue for crypto-mining companies such as Marathon Digital, Riot Platforms and Cipher Mining was dramatically reduced by a Bitcoin code update in late April. Called the halving, such updates are preprogrammed in the blockchain to slash mining subsidy, a fixed amount of Bitcoin rewarded to miners for validating transaction data, by half every four years. The most recent halving, the fourth since 2012, cut the daily production from 900 tokens to 450, resulting in about $10 billion revenue loss a year based on the price at that time.

Bitcoin miners were able to mitigate the loss by earning more transaction fees, which is the other revenue stream besides the mining subsidy. The launch of some memecoins on Bitcoin after the halving sent the fees soaring as users rushed to pay miners at a higher rate to prioritize their transactions. However, those fees plummeted as the memecoin frenzy cooled down.

“If miners were forced to sell even a fraction of their holdings over the coming month this would have a negative impact on markets,” Kaiko said in a report on Monday. “Trading activity typically slows down and liquidity dries up over the summer months.”

While Bitcoin miners sold most of their reserves amid the last crypto meltdown in 2022, they have been holding more over the last two years with a sharp rebound in the digital-asset market. Two of the largest public Bitcoin mining companies Marathon and Riot hold 17,631 Bitcoin worth just over $1.1 billion and 8,872 worth over $500 million, respectively, according to Kaiko.

Bitcoin rose about 2% to around $62,730 on Monday, and is down around 15% from an all-time high of almost $74,000 reached in March. Shares of Marathon were little changed at around $17.05, and are down 27% this year. Riot was also most unchanged at $9.46, and the stock has fallen around 40% since the start of 2024.