Key Points
- Bitcoin’s recent 11.28% drop from its all-time high has negatively impacted miners’ profitability.
- As a result of this decline, miners are being underpaid and could potentially capitulate.
Bitcoin [BTC] has experienced a significant drop of roughly 11.28% since reaching its all-time high of $109k three weeks ago.
This decrease has had a negative impact on both short-term holders and miners, with the latter finding it increasingly difficult to maintain profitability in the current market conditions.
Miner Profit/Loss in the Extreme Underpaid Zone
CryptoQuant analyst Frost noted that Bitcoin miners are currently severely underpaid, which could potentially lead to miners capitulating.
Bitcoin miners’ profit-loss sustainability has now entered the extremely underpaid zone, following the April 2024 halving that resulted in increased mining difficulty.
Despite the increased difficulty, Bitcoin’s hash rate has continued to grow, indicating a surge in competition among miners.
The ongoing decline in Bitcoin’s value since hitting its all-time high has led to shrinking returns for miners. In contrast, the actual mining cost has remained relatively high compared to the last difficulty bottom.
Potential Miner Capitulation Ahead
The current market conditions suggest that miners might begin to capitulate soon. Historically, when miner profit/loss profitability turns negative, it often leads to a mid-term positive price reaction as miners sell Bitcoin to cover costs.
Miner-to-exchange flows have also reached record levels, indicating heavy selling by miners. Additionally, the miners’ netflow total turned positive after five consecutive days of negativity, suggesting that more miners are transferring their BTC tokens to exchanges for sale.
The Puell multiple, a metric that has remained above 1 since January 13, suggests that miner revenue is still moderately healthy. As long as this metric remains above 1, it is less likely that miners will capitulate. Instead, the drop could be seen as a healthy correction, indicating accumulation by strong miners and investors.
For Bitcoin miners to avoid capitulation, BTC’s price must recover to increase miner profit/loss. If the price continues to fall, as it has over the past week, miners’ capitulation could be next. Therefore, BTC must reclaim and hold above $100k for miners’ sustainability goals to be achieved.