Potential capitulation of Bitcoin miners on the horizon marking the bleakest trend in two years
Bitcoin miners are experiencing a significant downturn in their operations, resulting in a decline in the network’s hashrate. This decline, which is the most severe since 2022, has raised concerns about the security of the cryptocurrency.
Recent reports indicate that Bitcoin miners have reached a two-year low in their BTC reserves, signaling their capitulation in the market. This has been exacerbated by the fact that the average production cost has exceeded the revenue generated, leading to companies operating at a loss.
The hashrate data, which reflects the production rate of the mining activity, continues to decline in a worrisome pattern. Data from mempool.space shows a sequence of two lower highs since the peak on April 27th.
The decline in hashrate is primarily due to weaker miners shutting down or unplugging their mining machines. This leads to a concentration of power among wealthier miners who can continue operating in unfavorable conditions. As a result, the network’s security is compromised, as it relies on proper decentralization and distribution.
Bitcoin analyst Joe Burnett has warned about the prolonged miner capitulation, and the situation is only worsening over time.
In addition to the decline in hashrate, Bitcoin miners are also selling off their reserves at an alarming rate. Data from Santiment reveals that these entities now hold only 1.8 million BTC, down from their previous holdings earlier this year. This aggressive sell-off has pushed their reserves to levels not seen since April 2022, when the price of BTC was below $40,000.
Despite the drop in hashrate, the average mining costs for Bitcoin remain high, according to MacroMicro data. This suggests that miners may be capitulating not only by selling their mining equipment or shutting down operations but also by selling BTC at a lower price than the average cost of mining.
Bitcoin mining is generally not a profitable venture for medium and small players, and many miners rely on various strategies to hedge their business or generate additional income. However, these dynamics tend to favor larger miners, leading to increased centralization in the industry.
The selling pressure from these few big miners can also hinder the surge in BTC prices unless there is an increase in demand. Currently, Bitcoin spot trading and on-chain transaction volumes are at record lows, adding to the challenges faced by the market.