The Bitcoin network is currently experiencing some indications of miner capitulation. This phenomenon typically involves miners either halting their operations or liquidating some of their Bitcoin holdings. Interestingly, historical data suggests that miner capitulation often coincides with the bottoming of Bitcoin prices, paving the way for a significant uptrend in the future.
Following the recent halving, the network hash rate has decreased by 7.7% since its peak on April 27. This decline in hash rate indicates that less efficient miners may have shut down their equipment due to negative profitability. According to CryptoQuant’s miner profit/loss sustainability indicator, miners have been facing significant underpayment since April 20. Daily revenues have plummeted by 63% from $79 million on March 6th to $29 million currently, with transaction fees contributing only 3.2% of the total revenue, the lowest percentage since April 8.
In addition to the decline in revenue, miners are also transferring Bitcoin out of their wallets at an accelerated pace. Daily outflows have reached their highest volume since May 21, signaling a potential increase in selling pressure. This phase of miner capitulation echoes a similar 7.7% hash rate drawdown observed in December 2022, which coincided with the bottom cycle following the FTX collapse. Historically, such substantial declines in hash rate have been associated with price-bottom conditions.
Another factor supporting the hypothesis of a price bottom is the significant discount at which Bitcoin is currently trading on Coinbase. This discount may indicate that Bitcoin is gearing up for the next bullish momentum. David Lawant, Falcon’s head of research, recently drew attention to this pattern, referring to the quote, “always darkest before the dawn.” Lawant pointed out that the last time the Coinbase premium was this negative, it preceded a massive rally from October 2023 to March 2024. Therefore, the prevailing discount on Coinbase could be a precursor to a much-needed price surge.
The observed miner capitulation on the Bitcoin network has raised concerns about the current state of miner profitability. However, historical data suggests that such periods of capitulation are often followed by price-bottom conditions and subsequent upward movements. The combination of declining hash rate, reduced miner revenue, increased outflows, and a negative Coinbase premium hints at a potential rally in the near future. Investors and traders should closely monitor these developments to anticipate and capitalize on potential market trends.
