What will happen to Bitcoin when miners deiced to sell-off?The slow down in the exchange market of cryptocurrencies is putting Bitcoin’s (BTC) price at risk of further decline. Bitcoin is still struggling to recover passed its key resistance levels. When a price constantly descends, it increases the probability of something called “miner capitulation” occuring. Miner Capitulation is the supposed cause which triggered the immense drop BTC faced in December of 2018.
Around the end of last year, Bitcoin’s price fell to the $6,000 region. This drop occurred after it had stabilized for 3 months in the range between $6,000 and $6,500. Following this, the subsequent drop to the $3,000 region happened during the span of just one month.
Why does miner capitulation occur?
Miner capitulation occurs in the Bitcoin market when mining is no longer profitable. When profitability drops, miners naturally sell their Bitcoin holdings. They do this to capitulate in response to worsening market sentiment. When Bitcoin miners start to sell off, it creates huge selling pressure on the market. This pressure can make it immesnly difficult for a major cryptocurrency like Bitcoin to maintain its momentum.
At present, it is still to early to predict whether miner capitulation will occur during the year’s end. However, if negative sentiment around the Bitcoin and cryptocurrency market is carried onto the first quarter of 2020, a miner capitulation could occur in the coming months. And this mining capitulation would be similar so what we saw in 2018
Mining giants struggling to stay competitive
The current price to break-even price on Bitcoin mining is estimated at around $4,100 to $4,500. One publicly listed mining giant based in Canada, has reportedly mined Bitcoin at a cost of $4,300 during the third quarter. The company stated:
“Revenue of $26.7 million; Mining Profit Margin of 58%, and Adjusted EBITDA of $14.7 million. Mined 1,965 Bitcoin at a Cost per Bitcoin of US$4,363 inclusive of electricity costs, mining pool fees, and all other production costs.”
Cryptocurrency researcher Ceteris Paribus explained that the cost of mining calculated “leaves out depreciation, expenses, and net finance expenses,” which could place the actual cost of mining at $7,100. The researcher added:
“Short-term if the price goes under $7.1k they will keep mining as this is still > operational costs & mining equipment is a sunk cost. But long-term you can’t imply that they are profitable <$5k. They will need to replace equipment, continue paying employees, financing costs, etc.”
The continuing fall in Bitcoin’s price along with the increase in mining difficulty has had a negative effect on the mining profit margins of major miners. This tough mining ecosystem could take a hit on smaller firms. This becomes even more likely if BTC falls to the $6,000s or below. In this price range mining Bitcoin is below the break-even point for most miners.
Bitcoin’s current price trends
Bitcoin is currently remaining strong in various key areas including user activity,, and hash rate. Bitcoin blockchain data from Blockchain.com shows the number of unique addresses has seen an increase from 310,000 in January 2019 to nearly 500,000. And this growth happened in less than 12 months. The hash rate has also seen an increase. Rising from 41 exahash in January to 92 exahash. Meaning the hash rate more than doubling during the same period.
The Bitcoin hash-rate nearly doubled
Bitcoin network hash rate. Source: blockchain.com
Due to the fundamentals, Bitcoin investors can see that the “2019 bubble” of Bitcoin is likely to burst in about two weeks. Meaning if BTC begins to demonstrate a largesell-off in the coming weeks, the cause of the drop would most likely be mining capitulation by smaller mining firms. Mining capitulation is seen by some as a positive point for many investors. As capitulation can often mark the end of a bear market, leading the beginning of an accumulation phase.