Coin Metrics argued in the latest edition of its March 31 State of the Network reports that Bitcoin is in a spiral of miner capitulation. This would get worse, it said, before it gets better.
Coin Metrics Sees Pattern of Capitulation
Despite BTC / USD having recovered over 70 percent in two weeks since hitting lows of $3,700, prices for less efficient miners are still “almost certainly declined below the breakeven price”.
This is supported by the recent drop in the mining difficulty of Bitcoin, which has been the biggest negative move since 2011 at nearly 16 percent. More pain is in store, before the mining sector recovers.
“We expect miners to follow a cycle of decreased profit margins, increased selling, capitulation, and a culling of the least efficient miners from the network,” the report summarizes.
“Once this cycle is complete, the miner industry should return to a healthier state that is supportive of future price increases.”
However, turbulent times will continue hitting miners and impacting Bitcoin in the short term. Next month, BCH and BSV hard forks will both receive a block reward halving — reducing the number of coins awarded to miners per block by 50 percent.
Halving of Bitcoin’s own will only occur in mid-May and will halve miners ‘supply from 12.5 BTC to 6.25 BTC.
This gives a one-month window during which miners will direct more hash power to BTC, as their block reward will be higher despite the increased cost, Coin Metrics says.
“When Bitcoin Cash and Bitcoin SV halve their block rewards, this should force miners to direct even more hash power to Bitcoin as it will still have a 12.5 native unit block reward (instead of 6.25) for about a month longer,” the report adds.
“Therefore, we should expect difficulty increases for Bitcoin that should further squeeze profit margins for all miners.”