Bitcoin miners are nearing capitulation due to shrinking profit margins and increased BTC sell-offs. Since the halving, miners have seen a 63% drop in daily revenues. As a result, miners are forced to sell their reserves.
According to CryptoQuant, a market intelligence firm, Bitcoin miners are showing signs of giving up, similar to what happened after the FTX crash in late 2022. This could mean that Bitcoin (BTC) might be reaching a low point.
Miner capitulation means some miners are reducing their operations or selling some of their Bitcoin to stay in business or manage their risks.
During this time, Bitcoin’s price dropped by 13%, from $68,791 to $59,603. One major sign is a drop in Bitcoin’s hash rate, which is the total computing power that secures the Bitcoin network.
This situation is very similar to late 2022, when the market hit rock bottom after the FTX crash.
The CryptoQuant graphic shows several signs that miners are struggling. One major sign is a 7.7% drop in the hash rate since the halving, indicating that it’s becoming harder for miners to continue their work. The hash rate, which measures the total computing power of the Bitcoin network, usually falls when the market is doing poorly. Now, the hash rate has reached a four-month low of 576 EH/s after hitting a record high on April 27.
This suggests that miners might face even tougher times ahead, but it could also mean good opportunities for investors looking to buy Bitcoin at a lower price.
Early signs of miner capitulation
When bitcoin miners start to give up, savvy investors often see it as a good time to buy. This is because when miners have to sell their BTC to cover costs, it pushes the price down.
However, this sell-off can also mean the market is hitting its lowest point, setting the stage for a possible recovery. Data from CryptoQuant shows that miners are selling their Bitcoin reserves faster than before.
Daily BTC outflows from miners’ wallets are at their highest since May, showing a big sell-off.
This trend suggests that miners, struggling with falling revenues, would rather sell their assets than keep operating at a loss.
The “hash price,” which measures how much miners earn per unit of computing power, has also fallen to very low levels. Right now, the average revenue per hash is $0.046 per EH/s, just slightly above the all-time low of $0.045.
This drop in profitability makes things even harder for miners, forcing them to shut down operations and sell their bitcoins, adding more pressure on the market.
As miners give up, bitcoin might find a new bottom before bouncing back.
Bitcoin’s hashrate decline
Notably, the 7.7% decline in hashrate is similar to what happened in late 2022, when Bitcoin’s price hit a low of $15,500 before rising over 300% in the next 15 months.
The CryptoQuant report mentioned that since the halving, miners have been extremely underpaid, as shown by the miner profit/loss sustainability indicator.
As a result, miners have seen a 63% drop in daily revenues since the halving when both Bitcoin’s block rewards and transaction fees were higher.
Total daily revenues have decreased from $79 million on March 6 to $29 million now.
Additionally, revenue from transaction fees has dropped to only 3.2% of the total daily revenues, the lowest since April 8.
Source: Daily Bitcoin miner outflows, CryptoQuant
Due to these decreased revenues, Bitcoin miners have had to use their reserves to earn yield. Daily miner outflows have surged to the highest level since May 21, suggesting they might be selling their BTC reserves.
This sell-off by miners, along with sales from Bitcoin whales and national governments, has contributed to Bitcoin’s recent price drop, reaching a four-month low of $53,499 on July 5.
An earlier report by financial services firm Cantor Fitzgerald noted that some of the world’s largest mining companies might be forced to give up if Bitcoin’s price falls to $40,000, highlighting the tough situation for the mining industry.
As Bitcoin goes through its 4th pivotal halving event, the landscape of cryptocurrency has transformed significantly. This new financial territory brings key changes and developments surrounding Bitcoin’s halving, from the unprecedented pre-halving price surges to the enhanced global decentralisation and security of its network
Bitcoin halving has catalysed a surge in crypto adoption
Since the Bitcoin halving event in May 2020, the number of people using cryptocurrencies worldwide has skyrocketed by at least 400%, growing from about 100 million to nearly 580 million users by the end of 2023.
This dramatic increase in user base is drawn from estimates by the Cambridge Centre for Alternative Finance and Crypto.com.
Although the rate at which new Bitcoins are generated has slowed down due to the halving process, global interest and adoption of cryptocurrencies have not decreased.
As of early 2024, data suggests that roughly 2.7% of the world’s population owns Bitcoin, amounting to about 219 million individuals.
This represents a significant rise—approximately 208%—from the 71 million Bitcoin users estimated four years earlier. It’s important to note, however, that these figures are estimates; accurately gauging the exact number of Bitcoin or other cryptocurrency users is challenging.
Factors like the inability of on-chain transaction analysis to distinguish between active users, long-term holders, and lost coins make precise counts difficult.
The 2024 pre-halving period has shown unprecedented growth in Bitcoin’s price, marking a distinct difference from the previous three halving events.
Historically, significant price surges in Bitcoin occurred after the halving, with new all-time highs typically forming about a year later.
For instance, before the 2020 halving, Bitcoin did not surpass its previous peak of $20,000. It only exceeded this mark 10 months post-halving.
However, the scenario has dramatically changed in the current cycle.
Bitcoin achieved a new all-time high just before the upcoming halving, hitting a record price of $73,600 on March 13, 2024. This kind of price action prior to a halving is unprecedented and has been noted by several analysts.
How Bitcoin miners are better positioned ahead of the 2024 halving
This time around, the unprecedented surge in Bitcoin’s price before the halving may have bolstered the mining industry, granting miners greater control over their operational costs.
Miners seem to be in better financial standing compared to previous halving cycles, with reduced debt levels and improved cost management, particularly in electricity expenses.
Moreover, the price appreciation preceding the halving is a novel occurrence in Bitcoin’s history, providing an additional boon to miners.
Since the third halving in May 2020, Bitcoin’s mining energy consumption has notably risen, reaching 99 Terawatt hours (Twh) by April 18, 2024. Despite this increase, there’s a positive trend in the utilisation of renewable energy sources for Bitcoin mining, accounting for 54.5% of the network’s energy consumption as of January 2024, up from 39% in September 2020, according to Bitcoin ESG Forecast and CCAF data, respectively.
The first Bitcoin halving with active spot ETFs in the U.S.
The 2024 Bitcoin halving stands out as the first to occur alongside active spot Bitcoin ETFs (exchange-traded funds) in the United States, marking a significant evolution in Bitcoin investment accessibility.
These ETFs, which began trading in January 2024, have opened the doors for institutional investors to engage more directly with Bitcoin.
Bloomberg’s ETF analyst, Eric Balchunas, reported that these spot Bitcoin ETFs have achieved “blockbuster success,” indicating a sharp rise in Bitcoin demand. Since their inception, the combined holdings of all ten spot Bitcoin ETFs have increased by at least 220,000 BTC, valued at approximately $14 billion.
Missed this earlier but looks like BlackRock and Pimco have filed for mutual fund to ETF conversions, joining about 70 funds so far with $100b to convert. MF cos looking to exploit all three roads to ETFville: clones, conversions and classes = bullish https://t.co/fqzMCG8cj5
Among these, BlackRock’s spot Bitcoin ETF has seen the most substantial inflows, with its holdings skyrocketing more than 10,000% from an initial 2,621 BTC to 273,140 BTC as of April 18.
As for the broader market dynamics, while the halving is significant, it should be viewed as part of a larger narrative that includes ETFs, quantitative easing, and other factors shaping the market’s future.
Bitcoin’s global decentralisation and enhanced security
Bitcoin’s network has seen substantial improvements in security and decentralisation over the past few years.
Previously concentrated primarily in mainland China, where nearly 80% of the mining activity took place as of 2020, the Bitcoin mining landscape has now become significantly more global.
As of February 2024, the United States leads with 40% of the total mining hash rate, followed by China and Russia, which contribute 15% and 12%, respectively, according to Hashlab Mining.
This shift toward geographic decentralisation continues as miners explore regions like Africa and Latin America, which are attracted by lower electricity costs.
Moreover, the security of the Bitcoin blockchain has dramatically increased; its hash rate has quintupled since the last halving, making the network much more robust against attacks.
Now, it requires five times more computing power and associated resources such as electricity, infrastructure, and hardware to pose a threat to the network.
The next Bitcoin halving will take place in 2024. Is this a ‘buy the dip’ opportunity? With less than one year to the next big crypto event, investors are getting anxious.
Is it time to invest in Bitcoin as the halving approaches? Historical patterns suggest that Bitcoin’s price behaviour tends to follow a distinct cycle aligned with these halving events, which occur every four years.
These cycles, known as “epochs,” typically encompass a significant high and low point in Bitcoin’s value, with these events being roughly four years apart.
Interestingly, in each epoch, the significant low point usually materializes just over a year prior to the next halving. Therefore, long-standing Bitcoin advocates see little evidence to suggest a significant deviation from this pattern in the future.
Ultimately, the Bitcoin halving is just a reminder that the world’s most valuable crypto is designed to become increasingly scarce as time passes by. Even if your crypto investment isn’t in Bitcoin, this even still has a massive effect on the entire market, as Bitcoin represents almost 50% of the market.
What is Bitcoin halving?
Bitcoin is created by powerful computers which solve complicated mathematical puzzles to validate each blockchain block and generate new Bitcoins. Every four years (210,000 blocks, to be more exact), the reward for generating a new block is cut in half. Hence the name Bitcoin halving.
When Bitcoin started, miners got 50 Bitcoins for every block they added. This was a lot, but it helped attract people to the system.
For example, the first halving happened in 2012 when the reward dropped from 50 to 25 Bitcoins. The second halving, in 2016, cut the reward down to 12.5 Bitcoins. The most recent halving in 2020 reduced the reward to just 6.25 Bitcoins.
The next halving is expected to happen in 2024. This halving process will continue until we hit around the year 2140, by which time all 21 million Bitcoins should have been mined.
Why does Bitcoin halving happen?
Imagine the Bitcoin system as a digital gold mine that’s programmed to dig up a new chunk of gold every 10 minutes. As more miners (people with powerful computers) join the hunt, they’re able to dig up gold faster. But to keep things fair and maintain the 10-minute digging goal, the digging process is made harder every couple of weeks. Despite the growth of the Bitcoin network over the past decade, the average digging time has stayed below 10 minutes, around 9.5 minutes, to be exact.
Now, the total amount of Bitcoin that can ever exist is capped at 21 million. When this number is hit, no more Bitcoin can be created. Bitcoin halving is a process that gradually reduces the amount of new Bitcoin that can be mined each time a block is added to the blockchain. This makes Bitcoin scarcer and potentially more valuable over time.
You might think that halving the reward for mining would make people less interested in doing it. But Bitcoin halvings have historically been associated with big jumps in Bitcoin’s price. This keeps miners motivated to mine more, even though they’re getting less Bitcoin each time they mine a block.
So, miners are encouraged to keep digging as long as the price of Bitcoin keeps going up. If the price doesn’t rise and the reward for mining keeps getting smaller, miners might be less interested in mining Bitcoin. This is because it takes a lot of time, computer power, and electricity to mine Bitcoin.
If you want to know more about Bitcoin, check out this Bitcoin hard fork guide, which explains all past forks which affected all BTC holders.
Should I buy Bitcoin?
Investor and entrepreneur Alistair Milne shared his perspective, recommending that those seeking to benefit from Bitcoin should consider purchasing now, as the period preceding the halving might not present as advantageous an entry point. He advised, “Avoid shorting when it’s dark green and ensure you’re fully invested before it turns blue.”
In the earlier part of the month, a well-known yet contentious figure in the Bitcoin industry used the halving narrative to argue that the pricing cycles aren’t a matter of coincidence. PlanB, the anonymous creator of the Stock-to-Flow (S2F) Bitcoin price prediction models, noted that about half of the market participants believe the link between halvings and price is random.
Why is bitcoin S2F/halving not priced in?
Because ~50% thinks the BTC price jumps after last 3 halvings (red) are a coincidence. Halvings are key to S2F, but these critics focus on auto-correlation between halvings and conclude there is no relation between S2F/halvings and… pic.twitter.com/8VaIy6oM5i
PlanB’s comments were framed within the debate over the relevance of the S2F theory to halvings, a theory that has faced considerable criticism due to unmet price predictions from 2021 onwards. However, PlanB also asserts that the current BTC/USD value is low, and the market hasn’t adequately factored in the upcoming halving.
PlanB questioned, “Why is bitcoin S2F/halving not priced in? Because ~50% thinks the BTC price jumps after last 3 halvings (red) are a coincidence.
Why isn’t the Bitcoin S2F/halving reflected in the price? Approximately 50% believe the price spikes following the last three halvings are coincidental,” adding an explanatory chart to his statement. He continued, “Halvings are key to S2F, but these critics focus on auto-correlation between halvings and conclude there is no relation between S2F/halvings and price. I disagree, obviously. 2024 halving will be very interesting!”
What does the Bitcoin halving event mean?
Think about Bitcoin miners like gold miners. They get paid in Bitcoin for their hard work of adding new transactions to the blockchain. But when Bitcoin halving happens, miners earn less for their work. This means fewer new Bitcoins enter circulation, similar to how less gold would be available if miners dug up less gold.
Here’s where the basic rules of supply and demand come in.
When the supply of something goes down, but demand stays the same or even goes up, the price usually goes up.
The halving event also slows down how fast new Bitcoin is made, which helps control inflation. Inflation is like when a dollar can’t buy as much as it used to. But Bitcoin is designed to be the opposite – it’s supposed to become more valuable over time. The halving event helps make this happen.
For instance, Bitcoin’s inflation rate was 50% in 2011, but it dropped to 12% in 2012 after the first halving and 4-5% in 2016 after the second halving. Currently, it sits at around 1.77%. So, after each halving, Bitcoin tends to become more valuable.
However, this process isn’t without its issues. Mining Bitcoin uses a lot of electricity, and miners might struggle to break even if the reward they’re getting is halved but the price of Bitcoin doesn’t go up enough to cover their costs.
Also, because of this, miners will be on the lookout for newer, more efficient technologies that can help them mine more Bitcoin while using less energy.
Besides, Bitcoin’s growing popularity and its acceptance by more businesses and big institutions might also push its price up. More transactions are likely to happen as more people start to use Bitcoin and blockchain technology.
Time to buy Bitcoin?
Bitcoin, the world’s largest cryptocurrency, is currently at a low point, trading around $27,300, after dropping almost 2% recently. This dip came as Binance, a significant cryptocurrency exchange, temporarily stopped Bitcoin withdrawals twice in one day due to technical issues. However, these operations have since resumed, and there are signs that Bitcoin could be gearing up for a recovery.
Despite the recent dip, Bitcoin showed promising resistance last week at $29,000, indicating the potential to climb back to $30,000.
Many Bitcoin investors are hopeful due to anticipated pauses in U.S. interest rate hikes and shifting trust from traditional finance to decentralized finance (DeFi). Combined with the upcoming Bitcoin halving event in 2024, which typically brings a surge in Bitcoin’s value, some experts predict Bitcoin could reach $35,000.
Still, it’s important to remember that Bitcoin is trading 50% lower than its all-time high of $69,000 in November 2021, and the journey to recovery may be lengthy. Also, external factors such as regulatory changes in countries like India could influence the market.
So, is it time to buy Bitcoin? It seems like a potentially advantageous time, given the low price and positive future prospects. But, as always with cryptocurrencies, it’s crucial to be vigilant and cautious due to their volatile nature. It’s best to stay informed about the current macroeconomic conditions and regulatory developments.
