An excerpt from Bitcoin Magazine’s Deep Dive: How Bitcoin miner capitulation is driving the bitcoin price down.
The below is an excerpt from a recent edition of the Deep Dive, Bitcoin Magazine‘s premium markets newsletter. To be among the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now.
For those that are unfamiliar with how hashrate is calculated: the Bitcoin network targets ten minute block times, and has a difficulty adjustment every 2,016 blocks (about every two weeks). If over a 2,016 block period, blocks are coming in at 5% faster rate than the 10 minute average target, then difficulty will adjust upwards, and vice versa.
Thus, when the hash rate is dropping, it means that blocks are coming in slower than the 10 minute target, which means that miners have turned off their operations (for any number of reasons).
The hash rate of the Bitcoin network has declined by approximately 27% since May 15, as a confluence of a mining ban in provinces in China as well as a large decrease in the price of bitcoin has led to many operations temporarily turning off their machines.
There are bitcoin miners all over the world with wide-ranging breakeven costs as a result of cost of energy, as well as miner efficiency. When mining no longer becomes economical for miners, they simply turn off their machines until conditions become favorable again (or the machines are reallocated to a different jurisdiction with a cheaper energy source entirely).
Total miner revenue has decreased from a peak of $68,018,448 per day on May 10 to $31,119,504 per day on June 17.
With a decrease of over 50% in revenue in a little more than a month’s time, miner profitability has come under serious stress, and this is undoubtedly placing downward pressure on the price of bitcoin.