Bitcoin Miners Profit Drop: Impact of Tight Margins Following Bitcoin Halving

The cryptocurrency market has been experiencing significant fluctuations, and recent trends indicate a notable decline in the profitability of Bitcoin miners. Let’s see how truthful this has proven to be in the market. 

CryptoQuant analysts have reported that Bitcoin miners are showing signs of “capitulation” as profit margins tighten in the post-halving climate. The BTC price has fallen close to $50,000, contributing to the Bitcoin miners profit drop. Miner capitulation metrics are allegedly nearing the same level as the market bottom following the FTX crash in late 2022, indicating a possible bottom for BTC.

According to news sources, the primary reason behind the drop in Bitcoin miners’ profits is the substantial decrease in Bitcoin’s market value. Over the past few months, Bitcoin (BTC) prices have plummeted, directly impacting miners’ revenues. This decline is not isolated, as Ethereum (ETH) has also been reported to undergo a drop in value, affecting overall mining profitability, in the crypto update. 

Miner Capitulation

Miner capitulation is a process in which some miners reduce their operations or sell a portion of their mined Bitcoin and reserves to stay afloat, earn yield or hedge their Bitcoin exposure. Over the last month, the Bitcoin price has been reported to drop 13% from $68,791 to $59,603, with a significant decline in Bitcoin’s hashrate—a total computational power that secures the Bitcoin network. This hashrate has experienced a 7.7% decline, hitting a four-month low of 576 EH/s after reaching a record high on April 27.

Hashrate and Market Bottoms

The 7.7% hash rate drop mirrors the decline seen in late 2022, when Bitcoin’s price bottomed at $15,500 before surging more than 300% over the next 15 months. Analysts suggest that such declines often signal potential market bottoms. For most of the period since the halving, miners have been “extremely underpaid,” as evidenced by the miner profit/loss sustainability indicator.

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Since the halving, CryptQuant states that Bitcoin miners have seen a 63% decline in daily revenues. Total daily revenues decreased from $79 million on March 6 to $29 million currently. Additionally, revenue from transaction fees has fallen to only 3.2% of the total daily revenues, the lowest share since April 8.

Miner Outflows and Reserve Sales

Due to decreased revenues, Bitcoin miners have been forced to use their reserves to earn yield. CryptoQuant noted that daily miner outflows have spiked to the highest volume since May 21, suggesting they may be selling their BTC reserves. Higher Bitcoin outflows indicate that miners could be selling, contributing to Bitcoin’s recent price pullback, which saw BTC fall to a four-month low of $53,499 on July 5.

The decline has also affected Bitcoin’s “hash price,” a measure of miner profitability per unit of computational power. Currently, the average mining revenue by hash is $0.049 per EH/s, just above the all-time low of $0.045 reached on May 1.

An earlier report by financial services firm Cantor Fitzgerald highlighted the mining industry’s predicament. It suggested that some of the world’s biggest mining companies would be forced to capitulate if the market price of Bitcoin plummets to $40,000.

Conclusion

The ongoing decline in Bitcoin and Ethereum prices has significantly impacted miners’ profitability. The Bitcoin miners’ profit drop is evident through various indicators such as hash rate decline, reduced daily revenues, and increased miner outflows. The market conditions suggest that miners may continue to face challenges unless there is a substantial recovery in Bitcoin prices. As people monitor these trends, it’s crucial to stay informed through reliable sources like The BIT Journal for the latest crypto updates.