Signs of Bitcoin Miner Capitulation At the Bottom
OVERVIEW
- Bitcoin miners’ profits are being squeezed as revenue has fallen to the lowest level since October 2020, while costs (mining difficulty) are still high.
- In this context, miners have increasingly sent their bitcoin to exchanges to sell, which might indicate some miners’ revenue can’t meet the break-even point, so they have to cash out to cover expenses/loans.
- Our data demonstrate a miner capitulation event that has occurred, which has typically preceded market bottoms in previous cycles.
Miners are in pain as revenues plunge and difficulty remains high.
As measured by the hashprice ($ per terahash per day), miner revenue has fallen to the lowest level since October 2020, at a daily rate of $0.09 per TH. The hashprice was slightly above $0.40 back in October 2020.
Undoubtedly, the hashprice has collapsed in annual terms, down 60% YoY, the fastest annual rate of decline since March 2020 (COVID-19 pandemic market selloff).
Not just revenue for miners sharply plunged, but the difficulty of mining has kept growing, which increased miners’ costs. Mining difficulty is up 51% YoY, while bitcoin price is down 39% in the same period.
With miners’ revenue dropping and mining difficulty still at high levels, miners are now in the “extremely underpaid” territory according to the chart below (blue dots), which compares the 30-day % change in miners’ revenue and difficulty.
Capitulation: miners forced to sell bitcoin amid profit squeeze.
As miner revenue declines and profits get squeezed, miners have turned into sellers of bitcoin. The increasing volume of bitcoin sent from miners to exchanges shows selling pressure. Only this month, the flow of bitcoin from miners to exchanges has totaled 23K bitcoins, the highest monthly level since May 2021.
In addition, just in one day, some mining pool participants of Poolin sent 5K bitcoin or ~$110M to Binance. This transaction might indicate some miners’ revenue can’t meet the break-even point, so they have to cash out to cover expenses/loans.
Consequently, the growth in miner-to-exchange flows (miners sending their bitcoin to exchanges for selling) spiked above normal levels when prices plunged, which we can classify as a capitulation event or the start of a capitulation period, which typically has preceded market bottoms (see the chart below).
