The Bitcoin network is currently displaying signs of miner capitulation, a phase where miners either halt their operations or sell off a portion of their Bitcoin reserves. This phase is crucial as it is historically associated with the bottoming out of Bitcoin prices, paving the way for a potential uptrend in the asset’s value.
Since the recent halving, the network hash rate has witnessed a decline of 7.7% from its peak on April 27th. Reports from CryptoQuant indicate that this drop in hash rate suggests that less efficient miners have likely shut down their mining equipment due to negative profitability. The sustained decrease in hash rate signifies a challenging period for miners in terms of revenue generation.
CryptoQuant’s miner profit/loss sustainability indicator reveals that miners have been facing significant underpayments since April 20th, following the Bitcoin halving event. Daily revenues have plummeted by 63%, from $79 million on March 6th to $29 million currently. Transaction fees contribute just 3.2% of the total revenue, marking the lowest share since April 8th. The average mining revenue per hash is teetering close to the all-time lows at $0.049 per EH/s, slightly above the record low of $0.045 reached on May 1st.
Another concerning trend is the increased transfer of Bitcoin out of miner wallets, with daily outflows hitting their highest volume since May 21st. This uptick in outflows signals possible selling pressure from miners, underscoring the phase of capitulation currently witnessed in the market. This pattern is reminiscent of the 7.7% hash rate drawdown observed in December 2022, a period that denoted the bottoming out of the market post the FTX collapse.
Historically, substantial declines in hash rate have been indicative of price-bottom conditions in the Bitcoin market. The fact that Bitcoin is currently trading at a noteworthy discount on Coinbase further supports this theory. Falcon’s head of research, David Lawant, alluded to this narrative, highlighting that the negative Coinbase premium historically preceded a significant rally in Bitcoin prices from October 2023 to March 2024. Lawant’s observations suggest that the current discount may serve as a precursor to a much-needed price rally in the near future.
The ongoing phase of miner capitulation in the Bitcoin network underscores the challenges faced by miners in sustaining profitability. However, historical patterns indicate that such capitulation phases often precede a bottoming out of prices, potentially setting the stage for a bullish trajectory in the market. As market participants navigate through these turbulent times, the impact of miner actions on Bitcoin prices remains a crucial aspect to monitor.
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