Bitcoin miners’ capitulation sparks optimism for the market bottom
(Bloomberg) — Bitcoin miners are sending a signal suggesting they have reached the point of capitulation, raising hopes among beleaguered crypto enthusiasts that the collapse in the digital asset market may be nearing a bottom.
Mining difficulty, a measure of the total amount of computing power dedicated to minting tokens, fell 7.3% during the most recent two-week period ending Monday. It is the biggest drop since July 2021, shortly after China banned the process, forcing operations in the country to close data facilities.
It is seen by some analysts as a sign that miners are throwing in the towel. The rate had risen in recent months as miners tried to gain more market share to help offset the plunge in the price of Bitcoin. Stopping operations suggests miners have exhausted reserves and are struggling to raise money to keep rigs running. Bitcoin has fallen around 75% from an all-time high of around $69,000 reached in November 2021.
“If you look at what’s happening with miners giving up their hardware and the length of the bear market, this is the point in the last few bear cycles where things started to turn around,” said Andy Long, CEO of Bitcoin miner White Rock, which started mining in 2013. “It’s Always Darkest Before the Dawn.”
While the sale of tokens by Bitcoin miners to raise money to fund operations is not as large as it used to be since inventory is lower, it was still a significant factor in depressing prices recently, said Matthew Kimmell, digital asset analyst at CoinShares. Miners mint around 900 coins daily through the process of competing to solve computational tasks to unlock rewards in exchange for processing the transactions on the blockchain.
Major miners sold off the bulk of their Bitcoin holdings during the spring market crash, but continued to run rigs for a few months, reflecting the recent surge in computing power. Some over-leveraged miners are finally running out of money and can sell their mining assets at a discount, Long said.
Besides the sharp declines in Bitcoin prices, energy costs have also compressed miners’ profit margins. More computing power on the Bitcoin network means less token rewards for miners.
Miners are among the most adamant Bitcoin holders. Although the selling pressure is not as important as a market signal, their Bitcoin sales can show you the market sentiment on some level, Kimmell said.
©2022 Bloomberg LP
