The world’s largest cryptocurrency began to exhibit signs of miner capitulation on April 19, when it underwent its most recent halving event and reduced the mining reward for discovering a new block by half, to approximately BTC 6.25 per 10 minutes at current market rates.
Therefore, miners that are either “grossly unprofitable” or “extremely underpaid” (which are essentially equivalent) are likely to sell Bitcoin and close down their machines in order to mitigate their exposure.
The network’s total security (hashrate) is reduced when miners turn their devices off. In addition to the aforementioned, a substantial decrease in hashrate may also result in a decrease in the network’s security and a delay in transaction processing until the subsequent difficulty adjustment.
According to CryptoQuant, miners have been “extremely underpaid” for the majority of the time. According to the report, miners’ daily total revenues plummeted from $79 million on March 6 to just $29 million in less than four weeks.
Initially, fees alone contributed tens of millions to the development of Ordinals and Runes. However, CryptoQuant has observed that transaction fees generate only 3.2% of total daily revenue, the lowest share since April 8.
With Bitcoin reducing block rewards in half, older processors ceased to be able to bring in much profit, increasing throughput and productivity. Miners began cutting off machines from the network.
The data indicates that despite hitting all-time highs just last week, Bitcoin price has already seen a 7.7% drop and is on the verge of reaching its lowest point since January, based on rolling seven-day averages. Higher peaks in miner outflows suggest that some miners are selling to protect their positions.
The data on-chain shows that the block has begun to reduce significantly relative to other times. Miners may see this decreased volume as yet another hurdle in their race to replace the diminishing block reward with transaction fees.
Even then, Bitcoin mining firms seem to be doing a decent job using more advanced processors and signing energy contracts abroad. In one month, the price of bitcoin has fallen by 15.78%. However, the capitulation of Bitcoin miners is not the sole cause. The German government moved a wallet worth $3 billion BTC on June 19.
Miner capitulation has traditionally marked a low point in prices. The previous hash rate decline of the same magnitude occurred when Bitcoin dropped to less than 17k following FTX’s implosion in November. Prices have since failed and restarted. At press time, Bitcoin is trading at roughly $60K—down 3.5% today, per The Block Composite. This has industry observers speculating that, despite the potential challenges ahead, a potential price floor may be in place.