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Here's why miner capitulation is actually good news for Bitcoin

Here’s why miner capitulation is actually good news for Bitcoin This is why miner capitulation is actually good news for Bitcoin Andjela Radmilac ·

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While brutal, fluctuations in mining profitability clear the network from unprofitable operations, and weak miners cannot withstand volatility.

2 min read

Updated:

September 10, 2022 at 6:31 pm

Cover art/illustration via CryptoSlate

Bitcoin’s highly volatile price has destroyed most of the crypto market and is now dragging down miners. While generally considered the foundation of the Bitcoin network and its most resilient players, miners are suffering from rapidly declining profit margins.

Bitcoin mining difficulty is currently only 1% below its all-time high and is pushing most of the miners out of the network. Mining profitability is about to hit one of the lowest points, as mining revenue per terra hash fell below $5,000 in early September.

btc miner net position change

Graph showing miners per terra hash (Source: Glassnode)

Faced with increasing mining difficulty and declining profitability, miners are forced to sell their Bitcoin assets. Miners have sold more than 12,000 bitcoins since the total supply of bitcoins held in miner addresses peaked at 1.84 million bitcoins in July.

Data from Glassnode shows that a similar capitulation occurred in November 2021, when Bitcoin reached a new all-time high. At the time, miners sold around 30,000 BTC. If miners follow a similar pattern throughout the fall, we could see a bigger sell-off in the coming weeks.

btc miner net position changebtc balance miner walletsbtc miner net position change Graph showing 30 days of Bitcoin supply held in miner addresses Change (Source: Glassnode)

While the hash ribbon suggests the worst capitulation is over, shrinking miner balances paint a different picture.

show miner wallet Chart of Bitcoin balances in (Source: Glassnode) btc miner net position change

However, our massive sell-off’s situation over the past two months may actually be positive for Bitcoin in the long run. While brutal, fluctuations in mining profitability clear the network from unprofitable operations, and weak miners cannot afford the volatility. When the market stabilizes, the Bitcoin network will stand on the shoulders of the most resilient and profitable miners – strengthening it for future cycles and volatility.

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