Bitcoin (BTC) plunged 7.38% to hit its five-month low of $29,313 on Tuesday as the market stared at the prospect of another sell-off, this time led by miners affected by a recent crackdown against cryptocurrency entities in China.

The People’s Bank of China on Monday said it had summoned multiple regional institutions, including the Agricultural Bank of China, China Construction Bank, and ICBC, as well as Jack Ma’s payment platform Alipay, to “strictly implement” its recent ordinances on curbing Bitcoin and other cryptocurrency-related activities, including mining.

Sichuan, a hydropower-rich region in South-West China, ordered the 26 largest crypto mining farms to stop operating, Chinese Media report on Friday. The province was contributing 75% of the total global hash power to run the Bitcoin blockchain network.

The regulatory warnings followed a decline in the Bitcoin market, which, in mid-April, traded near $65,000, spurred by backings from high-profile advocates, including Tesla CEO Elon Musk.

Miner capitulation FUD

A report published by Glassnode revealed a “seismic mining shift” taking place in China. The data analytics platform noted that many miners are in the process of either shutting down or migrating their hash power outside China to comply with the mining ban.

“One of the largest migrations of Bitcoin hash-power in history appears to be underway,” wrote Glassnode, adding that the estimated mean hash-rate (7DMA) has declined from circa 155 EH/s to around 125 EH/s in just two weeks after the China FUD (a backronym for Fear, Uncertainty, and Doubt). 

Glassnode anticipated that the Chinese mining industry would likely liquidate a portion of their Bitcoin holdings when coming to grip with relocating their farms abroad or selling their hardware. Those sell-offs might reflect “miners hedging risk” and “obtaining capital to facilitate and fund logistics.”

Meanwhile, for some miners, it may be a general exit from the industry entirely, the report added.

Recent on-chain trends have shown a spike in miners’ BTC distribution and a decline in accumulation.

For example, the Miner net position change metric, which tracks the transactional flow of Bitcoin mining pools, showed miners distributing BTC at a rate of 4K to 5K per month over the period in which the hash rate fell 16%.

“This has reversed the trend of net accumulation which was active since April.”

Big investors absorbing miners’ OTC distribution

Miner capitulation is not necessarily a bad thing as long as the market absorbs the selling pressure. During the first quarter of 2021, bids for BTC/USD rose from as low as $28,700 to $61,788 even as miners sold their Bitcoin holdings en masse.

Jonathan Ovadia, chief executive at OVEX — a South Africa-based cryptocurrency exchange, credited institutional investors behind the latest sell-off absorption as he drew evidence from MicroStrategy’s ongoing Bitcoin accumulation spree. He said:

“The continuous accumulation of Bitcoin by institutional investors, particularly MicroStrategy, is based on a very deep conviction of the potential future upside beyond this current correction.”

Meanwhile, taking a look at over-the-counter (OTC) desks, which miners utilize to match their large size distributions with institutional buyers, also showed demand among large volume buyers.

“During both the May Sell-off and over the last two weeks, between 3.0k and 3.5k BTC in net inflows have been observed,” Glassnode observed. “However in both instances, almost the full inflow size was absorbed by buyers over just a few weeks.

As a result, OTC’s Bitcoin balances were relatively flat since April.