Many have been wondering which group represents the majority of crypto bears recently as prices keep plummeting. Those that got into crypto within the last year have likely fled the scene with tails between their legs and burnt fingers. That leaves long term hodlers, institutional investors, and Chinese crypto miners.
Chinese Miners Playing the Short Game
A report in a local media publication aligned with Bitmain suggests it could be this latter group that have been shorting Bitcoin in great numbers. According to a translation of the story, several quotes were taken from Chinese miners explaining their reasoning;
“Everyone is short-seller, we do this for self-defense but that will lead to a further decline in cryptocurrency price … Without short selling, we will be eliminated ultimately, but if everybody keeps doing this, we will finally die together, which is quite heroic,” said a Chinese miner called Jin Xin.
In a bear market with a down trend that is getting steeper by the week it makes sense to hedge on shorting cryptocurrencies;
“If I mine 30 coins in the next month, while its price may continue to fall by another 10% according to the current trend, I shall place a short order on the exchange to sell them at current price but deliver one month later,” he added.
Similar to futures, the miners can lock in a price for their coins instead of facing more uncertainty down the line when prices are likely to be even lower. Hedging has become an essential skill in surviving a bear market whereas four years ago, when there were fewer Bitcoins and mining difficulty was much lower, hodling would have sufficed.
Bitcoin mining has gone through several stages over the years, from a garage activity for enthusiasts on gaming rigs, to mega factories, and now to a financial model. The principal now is that if the price drops, then miners make a profit, but that profit is negated by the now lower value of the coin they have. As pointed out by Trustnodes, if price increases, then they make a loss by short selling, but that loss is annulled by the higher value of the now movable coin they hold.
This is a rather selfish and destructive approach to the crypto ethos which may well end in bankruptcy for many Chinese miners. Smarter ones are likely to be hodling while the storm passes and waiting for a