The Bitcoin network is currently experiencing a significant drop in hash rate, indicating a state of miner capitulation. This phase is characterized by miners either shutting down operations or selling off part of their Bitcoin reserves. Since the recent halving, the network hash rate has decreased by 7.7% from its peak on April 27. This decline suggests that less efficient miners have likely turned off their equipment due to negative profitability.
The latest report from CryptoQuant reveals that miners have been significantly underpaid since April 20, following the 2024 Bitcoin halving. Daily revenues have plummeted by 63% from $79 million on March 6th to $29 million currently. Transaction fees now make up just 3.2% of the total revenue, the lowest share since April 8. The average mining revenue per hash has also dropped to $0.049 per EH/s, barely above the all-time low of $0.045 reached on May 1.
In addition to the decline in revenue, miners have been transferring Bitcoin out of their wallets at increasing rates. Daily outflows have spiked to their highest volume since May 21, indicating potential selling pressure in the market. This current phase of miner capitulation is reminiscent of the 7.7% hash rate drawdown observed in December 2022, which marked the bottom cycle following the FTX collapse.
Historically, significant declines in hash rate have been associated with price-bottoming conditions in the Bitcoin market. The fact that Bitcoin is currently trading at a significant discount on Coinbase further supports the thesis of a potential price bottom. Falcon’s head of research, David Lawant, has pointed out that the last time the Coinbase premium was this negative, it preceded a massive rally from October 2023 to March 2024. This could indicate that the current discount might be a precursor to a much-needed rally in Bitcoin prices.
The current state of miner capitulation and declining hash rate in the Bitcoin network may signal the formation of a price bottom. While these conditions can be challenging for miners in the short term, they have historically been followed by significant upward movements in the price of Bitcoin. Investors and traders should monitor these developments closely as they could indicate a potential turning point in the market.
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