The bear market has been going on for a year now. Who still has the strength to sell their BTC after 365 days of suffering and pain in the crypto market? The answer is simple: Bitcoin miners.
Rising global electricity prices and the falling price of BTC have made cryptocurrency mining increasingly unprofitable. Retail Bitcoin miners, who were hit earliest by mining costs, had to shut down their rigs some time ago. Meanwhile, the current declines in the price of BTC have meant that even large mining pools today have to sell more coins to maintain their business.
In today’s analysis, BeInCrypto looks at the indicators of Bitcoin Production Cost and Bitcoin Miner Sell Pressure (BMSP). In addition, we compare them with the recent breakout on the chart of BTC inflows to exchanges and with the Bitcoin network hashrate.
Why do Bitcoin miners sell?
There are two main reasons why Bitcoin miners are willing to sell their coins. On the one hand, there are huge profits when BTC prices are high. Then, increased sales by miners signal a major overvaluation of the cryptocurrency market and usually occur during and at the end of a long-term bull market.
On the other hand, the reason for selling can be extremely low BTC prices. These make maintaining the Bitcoin mining business on the brink of profitability. Bitcoin miners then sell more than usual in order to cover current business costs and stay afloat in the bleeding market.
The latter situation is currently being observed. On November 9, BTC fell to a low of $15,588. This has caused even the largest Bitcoin miners, who have relatively cheap energy and the best equipment, to find themselves at a loss.
An indicator that monitors the profitability levels of the BTC mining sector is the Bitcoin production cost metric by @caprioleio. The indicator includes a red band of the BTC price range below which mining becomes unprofitable.
In the chart below, we can see that a drop below the upper end of the range causes retail Bitcoin miners with the weakest equipment to capitulate. Currently, this level is around $26,000. In contrast, a drop below the lower end of the range causes mining costs to exceed the profits of even the largest miners with the best equipment and lowest energy prices. Currently, this level is around $16,000.
It means that the only way to keep mining operations going today is to sell accumulated BTC reserves with which miners can maintain ongoing operations. Such capitulations by miners usually correlate with a bottom in the Bitcoin price. Most recently, the price of BTC fell below the bottom of the Bitcoin production cost indicator in May-June 2022 and during the COVID-19 crash in March 2020 (blue circles).
Selling pressure highest in almost 5 years
The indicator correlated with production costs is Bitcoin Miner Sell Pressure. The author of this metric @caprioleio explains that higher values mean higher than usual selling pressure. Conversely, entering the red area signals extraordinarily high selling pressure.
On the long-term chart, we can see that Bitcoin miners today are experiencing the highest selling pressure in almost 5 years (blue chart below). The last time the index saw such high levels was at the peak of the 2017 bull market and at the end of the 2018 bear market. During the latter period – like today – the Bitcoin Production Cost index reached levels at the bottom of the band.
The analyst adds that the sales pressure indicator “identifies industry stress, excess, and miner capitulation.” He further adds that “in some instances, BMSP spots capitulation before Hash Ribbons.” It is worth mentioning that the latter gave a buying signal at the end of August 2022, after the previous capitulation of Bitcoin miners.
Bitcoin miners shed reserves
Bitcoin miners today are experiencing increased production costs and high selling pressure. This leads to the need to divest some of their reserves, increased sales, and further declines in the price of BTC.
In recent days, we have seen a sharp decline in Bitcoin miners’ reserves. Thus, it seems that the declines as a result of the FUD associated with the FTX bankruptcy were mainly driven by the miners’ capitulation.
This is confirmed by the chart of inflows to the exchanges, which come from known BTC mining pool addresses. The exceptionally high breakout in recent days correlates with the drop in the Bitcoin price.
The good news, on the other hand, is that despite the difficulties of Bitcoin miners, the hashrate of the Bitcoin network remains at record-high levels. This means that despite the ongoing capitulation of miners and low BTC prices, the largest mining pools are still able to maintain their rigs operational.
With the deluge of bad news, hacks and bankruptcies of many cryptocurrency companies, it’s important to remember that the Bitcoin network has never been as secure and resistant to hacking as it is today.
For BeInCrypto’s latest Bitcoin (BTC) analysis, click here.
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