Bitcoin’s price has seen a significant drop, falling by around 11.28% from its all-time high (ATH) nearly three weeks ago. This decline has impacted not only short-term holders but also the profitability of miners.
This situation has left miners grappling to keep up with the market. Analysts have observed that miners are currently severely underpaid, risking potential capitulation. The profit-loss sustainability for Bitcoin miners has entered the extremely underpaid zone.
This situation follows the April 2024 halving, which resulted in a rise in mining difficulty. Despite this, Bitcoin’s hash rate has continued to grow, indicating an increase in competition among miners. With Bitcoin’s continued decline, miners’ returns have been decreasing, while the realized mining cost remains relatively high.
This market condition suggests that miners might start capitulating soon. Historically, when miner profit/loss profitability turns negative, it often triggers a mid-term positive price reaction. This reaction usually involves miners selling Bitcoin to cover costs.
Currently, miners are selling heavily, with miner-to-exchange flows reaching record levels. This trend implies that more miners are transferring their BTC tokens to exchanges for selling. Operational difficulties have compelled miners to sell, and some might even be forced to capitulate temporarily.
With miners’ profitability dropping, it’s crucial to determine whether capitulation is imminent. The Puell multiple, a key metric, has remained above 1 since 13 January, indicating that miner revenue remains moderately healthy. As long as this remains above 1, miners are less likely to capitulate. Hence, the recent drop could be a healthy correction rather than a sign of weakness.
For Bitcoin miners to avoid capitulation, BTC’s price needs to recover to increase miner profit/loss. If the price continues to fall, miners’ capitulation could be next. Therefore, BTC must reclaim and hold above $100k for miners’ sustainability goals to be achieved.
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