Since mid-October, the Bitcoin miner hash rate has seen a notable downturn, sharply declining after years of steady growth. This decrease indicates a genuine capitulation among Bitcoin miners, driven by diminishing profitability alongside recent weak price movements. Nonetheless, could this change in the mining landscape present a unique opportunity?
Bitcoin Miner Profitability
The total computational hash rate of the Bitcoin network has entered a significant downward trend since October 18th, reversing what has been a consistent multi-year increase. The hash ribbons indicator, which assesses the 30-day moving average against the 60-day moving average, has shifted to red, signaling miner capitulation. When the longer-term moving average surpasses the shorter-term one, it suggests that miners are withdrawing computational power from the network, usually because profit margins have become too slim to sustain operations at previous levels.
The Puell Multiple, which gauges daily USD earnings for miners relative to their 365-day moving average, recently dropped to around 0.67, indicating that miners are earning merely two-thirds of their yearly average revenue. This metric underscores a troubling trend; as Bitcoin has matured and the network expanded, mining economics have increasingly tightened.
Bitcoin Miner Revenue Under Pressure
A more profound issue exists in the sources of miner revenue. Bitcoin miners earn from two main streams: block subsidies and transaction fees. The current block subsidy is 3.125 BTC per block, making up the majority of miner income. However, transaction fees, which could theoretically help counteract declining subsidies over time, have been on a long-term downward trajectory throughout this cycle. In USD terms, revenue from miner fees is now almost negligible in comparison to the block subsidy.
This presents a troubling mathematical issue. The block subsidy is halved every four years. To maintain constant miner revenue, Bitcoin’s price must consistently double within that timeframe. This requirement becomes increasingly unrealistic as Bitcoin matures and approaches market capitalizations of tens or hundreds of trillions. Over 20-30 years, the halvings would necessitate Bitcoin prices reaching tens of millions of dollars per unit merely to sustain current revenue for miners.
Structural Hurdles for Bitcoin Miners
As block subsidies gradually head toward zero in the coming decades, transaction fees must ideally compensate for this shortfall. However, the current cycle illustrates that fee revenue is moving in the opposite direction, declining as users adopt more efficient layer-two solutions like the Lightning Network and as on-chain transaction volume stagnates.
While layer-two scaling solutions are beneficial for Bitcoin’s usability and can lower costs for users, fewer on-chain transactions resulting in reduced congestion and fees is advantageous for accessibility. Yet, these advancements that enhance Bitcoin’s practicality as a payments layer simultaneously diminish the long-term revenue needed to secure the base layer.
Conclusion: Bitcoin Miner Capitulation as Opportunity
Indeed, Bitcoin miners are capitulating due to falling prices and declining profit margins. For tactical traders and investors looking to accumulate, this may provide an opportune moment to build positions, especially after the hash ribbons reversal signal emerges. History suggests that such phases rarely last long without ultimately leading to sharp increases in Bitcoin value.
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Disclaimer: This article is for informational purposes only and should not be considered financial advice. Always conduct your own research before making any investment decisions.
