Are Bitcoin Miners Near Capitulation?

According to market intelligence firm CryptoQuant, Bitcoin miner capitulation metrics are approaching levels seen during the market bottom following the FTX crash in late 2022. This suggests a possible bottom for Bitcoin (BTC).

Miner Capitulation Explained: Miner capitulation occurs when miners reduce operations or sell a portion of their mined Bitcoin and reserves to stay financially viable. This often happens during periods of prolonged low prices or high operational costs.

Recent Signs of Capitulation: CryptoQuant analysts have identified multiple signs of miner capitulation over the past month, during which Bitcoin’s price dropped by 13% from $68,791 to $59,603. Key indicators include:

1. Hashrate Decline:
   • Bitcoin’s hashrate, which measures the total computational power securing the network, has fallen by 7.7% to a four-month low of 576 EH/s. This decline is reminiscent of the drop seen post-FTX collapse.
   • “Bitcoin Miner capitulation mirrors December 2022 levels with a 7.7% hashrate drop, similar to post-FTX collapse conditions. Such declines often signal potential market bottoms.”
2. Revenue Decline:
   • Since the halving event, miners have faced a 63% decline in daily revenues. Total daily revenues decreased from $79 million on March 6 to $29 million currently. Revenue from transaction fees has also fallen to just 3.2% of total daily revenues, the lowest share since April 8.
3. Increased Miner Outflows:
   • Daily miner outflows have spiked to the highest volume since May 21, suggesting that miners might be selling their BTC reserves to cover costs.
4. Impact on Bitcoin Price:
   • This increased selling pressure from miners, along with sales from Bitcoin whales and national governments, contributed to Bitcoin’s price drop to a four-month low of $53,499 on July 5. The average mining revenue per unit of computational power (hash price) is currently $0.049 per EH/s, just above the all-time low of $0.045 reached on May 1.

Implications of Miner Capitulation:

1. Hashrate Decline and Network Security:
   • A reduced hashrate decreases network security, making it easier for malicious actors to conduct a 51% attack.
2. Difficulty Adjustment:
   • Bitcoin’s difficulty adjustment mechanism recalibrates every 2016 blocks to maintain a consistent block mining time. A significant drop in hashrate would lower the difficulty, making mining easier and potentially stabilizing the network.
3. Market Impact:
   • Increased selling pressure from miners can drive prices down further. However, once weaker miners exit and difficulty adjusts, the remaining miners could become more profitable, potentially supporting a price recovery.
4. Miner Consolidation:
   • Smaller or less efficient miners may be weeded out, leading to consolidation where larger operations dominate the network, which could centralize mining power.
5. Economic and Psychological Impact:
   • Miner capitulation can negatively impact market sentiment, leading to panic selling. Conversely, long-term investors might view capitulation as a buying opportunity, stabilizing prices as new capital enters the market.

Conclusion: While miner capitulation poses challenges such as reduced network security and increased selling pressure, the subsequent difficulty adjustment and potential price recovery highlight Bitcoin’s resilience and self-correcting mechanisms. Markets usually bottom at extremes like this.