Bitcoin miner hashrate has experienced a significant drop since mid-October, despite years of almost uninterrupted growth. This decline reflects the capitulation of genuine Bitcoin miners, caused by worsening profitability in the face of Bitcoin’s recent price slump. But does this shift in Bitcoin miners actually present a golden opportunity?
Bitcoin miner profitability
The total computed hashrate of the Bitcoin network has entered a notable downward trend since October 18, reversing an otherwise consistently rising situation over several years. The hash ribbon indicator, which compares the 30-day moving average of the hash rate to the 60-day moving average, turns red, indicating miner capitulation. When the long-term moving average rises above the short-term moving average, this indicates that miners are withdrawing computational power from the network. This is usually because margins are too thin to justify continuing to operate at previous levels.
The Puel multiple, which measures miners’ daily U.S. dollar revenue relative to their 365-day moving average, recently fell to around 0.67. This means that miners only earn two-thirds of the average annual revenue. This metric shows that as Bitcoin matures and the network grows, the economics of mining are becoming increasingly compressed.
Bitcoin miner profits under pressure
A more serious problem lies in the revenue structure of miners. Bitcoin miners earn income from two sources: block subsidies and transaction fees. The current block subsidy is 3.125 BTC per block, which accounts for the majority of miners’ revenue. However, while transaction fees could theoretically offset declining subsidies over time, they have entered a long-term downward trend throughout this cycle. Measured in USD terms, miner fee income is currently virtually negligible when compared to block subsidies.
This creates an unpleasant math problem. Block grants decrease by 50% during halvings every four years. In order for miners’ profits to remain constant, the price of Bitcoin would have to double reliably every four years. As Bitcoin matures and its market capitalization approaches tens or hundreds of trillions, this requirement becomes increasingly unrealistic. Within 20-30 years, the halving will require Bitcoin prices in the tens of millions of dollars per unit just to maintain current levels of miners’ profits.
Structural hurdles for Bitcoin miners
As block subsidies eventually decline towards zero in the coming decades, transaction fees should theoretically fill the gap. However, the current cycle shows fee income going in the opposite direction and decreasing as users migrate to more efficient Layer 2 solutions like the Lightning Network and on-chain transaction volume stagnates.
Layer 2 scaling solutions increase the utility of Bitcoin and reduce costs for users. Similarly, fewer on-chain transactions, reducing congestion and fees, are positive for accessibility. However, these developments and improvements that make Bitcoin more viable as a payment layer also reduce the revenue available to secure the base layer in the long term.
Conclusion: Bitcoin miner capitulation is an opportunity
Bitcoin miners are definitely capitulating due to declining price trends and deteriorating profit margins. For tactical traders and accumulation-minded investors, this represents a lucrative opportunity to expand their positions, especially after the hash ribbon reversal signal appears. History shows that periods like this rarely last without eventually causing a meteoric rise in Bitcoin.
For more in-depth data, charts, and expert insights on Bitcoin price trends, visit BitcoinMagazinePro.com. For more expert market insights and analysis, subscribe to Bitcoin Magazine Pro on YouTube.
Disclaimer: This article is for informational purposes only and should not be considered financial advice. Please be sure to do your own research before making any investment decisions.
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