Bitcoin Miner Capitulation: A Signal for the Next Bull Run?

TLDR

Bitcoin’s hash rate has declined 7.7% since its April peak, indicating possible miner capitulation.
Miners are experiencing reduced profitability due to the recent halving event and lower Bitcoin prices.
Daily miner outflows have spiked, suggesting increased selling of Bitcoin reserves by miners.
Historically, miner capitulation has often coincided with Bitcoin price bottoms before significant rallies.
The current situation is reminiscent of December 2022, when Bitcoin bottomed before a 300% surge.

Bitcoin miners are showing signs of capitulation, according to recent data from blockchain analytics firm CryptoQuant. This development could potentially signal a bottom in Bitcoin’s price, paving the way for a future rally.

The Bitcoin network’s hash rate, which measures the total computational power used to mine Bitcoin, has declined by 7.7% since reaching a record high of 623 exahashes per second (EH/s) on April 27.

As of the latest data, the hash rate stands at 576 EH/s, its lowest level in four months. This significant drop in hash rate is reminiscent of a similar decline in December 2022, which preceded a more than 300% surge in Bitcoin’s price over the following 15 months.

The recent halving event in April, which cut the block rewards for miners in half, has put considerable pressure on the mining industry. CryptoQuant’s report indicates that miners have been “mostly extremely underpaid” since April 20, forcing many to shut down mining machines that have become unprofitable.

Daily revenues for miners have plummeted by 63% since the halving, factoring in both reduced block rewards and lower transaction fee revenue.

This financial strain has led to increased selling pressure from miners. CryptoQuant data shows that daily miner outflows have spiked to their highest levels since May 21, indicating that miners are moving coins out of their on-chain wallets at a faster pace than usual.

Crypto analyst Ali Martinez noted that Bitcoin miners have sold more than 2,300 BTC in the past three days alone, amounting to approximately $145 million.

In the past 72 hours, #Bitcoin miners have sold over 2,300 $BTC, valued at approximately $145 million! pic.twitter.com/swXl61VqkB

— Ali (@ali_charts) July 2, 2024

The average mining revenue per hash, known as the hash price, has also fallen to near all-time low levels. Currently standing at $0.049 per EH/s, it’s just above the all-time low of $0.045 reached on May 1st. This metric is crucial for miners as it directly affects their revenue based on the computational power they contribute to the network.

Historically, periods of miner capitulation have often coincided with significant price bottoms for Bitcoin. When miners, who are typically strong holders of Bitcoin, are forced to sell their reserves, it can lead to a substantial reduction in selling pressure once the capitulation phase ends. This reduction in selling pressure can set the stage for a price recovery.

Market expert Scott Melker points out that the market may be nearing a crucial signal. He suggests that if a daily candle closes below the $60,300 level, it could lead to a bullish divergence, with the daily Relative Strength Index (RSI) moving out of oversold territory. This situation would be similar to last August when Bitcoin’s price was around $26,000.

$BTC DAILY

We are close to the signal I have been watching for.

If a daily candle closes below ~$60,300, we will likely get bullish divergence with RSI coming out of oversold on the daily.

RSI hit oversold for the first time since last August, when price was around $26,000.… pic.twitter.com/hsQj7fg4zF

— The Wolf Of All Streets (@scottmelker) July 3, 2024

However, crypto analyst Andrew Kang offers a more cautious perspective. He highlights the significance of a potential loss of the four-month trading range for Bitcoin, drawing parallels with the range observed in May 2021 following a parabolic rally.

Kang notes that over $50 billion in crypto leverage is currently near all-time highs, compounded by an 18-week consolidation phase without extreme washouts. He suggests that a more significant reset to the $40,000s could be possible, potentially requiring several months of choppy or downward price action before a reversal.