Bitcoin Network Shows Signs of Miner Capitulation: CryptoQuant

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Tanzeel Akhtar

Journalist

Tanzeel Akhtar

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Tanzeel Akhtar has been covering the cryptocurrency and blockchain sector since 2015. She has written for the Wall Street Journal, Bloomberg, CoinDesk, Bitcoin Magazine and Bitcoin.com.

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Last updated: 

July 4, 2024

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There are signs of Bitcoin miner capitulation, which could indicate a bottom in Bitcoin prices, according to a report by CryptoQuant.

Miner capitulation is when some miners halt operations or liquidate portions of their Bitcoin reserves, typically due to unsustainable financial pressures. Historically, this process has often coincided with significant price bottoms for Bitcoin.

So What Are Indicators of Miner Capitulation?

The CryptoQuant report highlights a noticeable decline in the Bitcoin network’s hashrate following the recent halving event. The hashrate, which measures the total computational power used to mine Bitcoin, has dropped by 7.7%.

This is the most substantial decline since December 2022, a period marked by the collapse of the FTX exchange and the associated Bitcoin cycle bottom. A falling hashrate indicates that some miners are shutting down their operations due to reduced profitability.

Underpayment of Miners

Bitcoin miners are currently experiencing significant financial strain, said CryptoQuant. The combination of lower Bitcoin prices, reduced block rewards post-halving, and a collapse in transaction fees has led to miners being extremely underpaid. This financial pressure forces miners to consider shutting down their operations or selling their Bitcoin holdings to cover costs.

Bitcoin miner reserves have reached their lowest level in more than 14 years, falling to 1.90 million BTC as of June 19, 2024, according to data from CryptoQuant. This significant decline marks the lowest point since February 2010, reflecting a trend where miners hold less Bitcoin on their balance sheets.

As profitability declines, miners have been moving Bitcoin out of their wallets at an accelerated pace. Daily miner outflows have surged to their highest levels since May 21.

This trend suggests that some miners are selling their Bitcoin reserves. Additionally, some large mining companies have started utilizing their reserves to earn yield or hedge against Bitcoin exposure, indicating a shift in strategy driven by financial necessity.

The average mining revenue per hash, also known as hashprice, remains near all-time low levels. This metric is crucial for miners as it directly affects their revenue based on the computational power they contribute to the network. Persistently low hashprice levels further exacerbate the financial difficulties faced by miners, pushing more towards capitulation.

Implications for Bitcoin Prices

The signs of miner capitulation highlighted in the CryptoQuant report suggests that the Bitcoin market may be approaching a bottom. Historically, miner capitulation has been a precursor to price bottoms in Bitcoin cycles.

When miners, who are often seen as strong holders of Bitcoin, are forced to sell their reserves, it can lead to a significant reduction in selling pressure once the capitulation phase ends. This reduction in selling pressure can set the stage for a price recovery.

Current indicators of miner capitulation, including a declining hashrate, underpayment of miners, increased Bitcoin outflows, and low hashprice levels, point to a critical juncture for Bitcoin prices.