Drop in Bitcoin Mining Difficulty Signals an Impending Bottom in BTC Price

  • Usually, the capitulation of miners indicates that Bitcoin has finished dumping. When is it going to end?

It appears that the recent difficulties faced by Bitcoin miners could be a sign of strength for the cryptocurrency’s price.

According to Hashrate Index, Bitcoin’s overall hash rate has decreased from 658 exahashes per second (EH/s) at its peak in late May to 556 EH/s on June 28. The hash rate, which is a gauge of how much labor miners are putting into securing the Bitcoin network, also indicates how competitive mining is.

Consequently, this past weekend saw an automatic 7.8% decrease in the difficulty of mining blocks on the Bitcoin network, from 83.68 terahashes per second (TH/s) to 79.50 TH/s.

That kind of drop is rare in the history of Bitcoin. As a matter of fact, the last time a decline of this kind in hash rate and network difficulty happened was during the collapse of FTX in December 2022—a time when several significant mining companies went bankrupt and when the price of Bitcoin eventually reached its lowest point following a year-long bear market.

The CEO of CryptoQuant, Ki Young Ju, tweeted on Tuesday, “Miner capitulation is still ongoing.” It usually stops when the average daily mined value reaches 40% of the annual average; now, it is at 72%.

Last week, CryptoQuant published a paper pointing out that a previous bottom in Bitcoin prices has been linked to miner capitulation. This implies that for traders hoping to enter the market at the proper time, keeping a close eye on miner health may be essential.

Since Bitcoin is the medium of exchange for their earnings, miners’ income is primarily based on the price of the cryptocurrency. As a result, the mining industry’s overall revenue has been severely impacted by Bitcoin’s significant price decline since March.

But the biggest source of annoyance for miners has been the halving of Bitcoin in April.

Vincent Maliepaard, marketing director at IntoTheBlock said that since June, the reserves held by Bitcoin miners had dropped by about 20,000 BTC. Given that margins have dropped since the Bitcoin halving two months ago, this latest sell-off by miners may have been caused by it.

The hashprice of Bitcoin, which indicates the profitability of the mining sector per unit of labor completed, has fallen to all-time lows over the past three months.

Compass Mining states that following a halving incident, such low profitability periods typically last for six to twelve months. During these times, mining companies should upgrade their fleets of computers to take advantage of the best mining technology available.

Compass Mining’s chief revenue officer, CJ Burnett said that big public miners are still actively purchasing the newest generation of miners in order to increase fleet efficiency, economies of scale, gross margin, and ultimately their stock price.

Disclaimer : This article was created for informational purposes only and should not be taken as investment advice. An asset’s past performance does not predict its future returns. Before making an investment, please conduct your own research, as digital assets like cryptocurrencies are highly risky and volatile financial instruments.

Author: Puskar Pande

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