Why do bitcoin miners give up?

Written by Marcus Sotiero, Analyst at a UK digital asset brokerage GlobalBlock

Bitcoin once again failed to sustain its rally above $30,000 yesterday, as it was strongly rejected from the $31,500 key level. This level is critical to overcome for Bitcoin to rise towards $35,000.

Some on-chain metrics suggest that a bottom may not be in sight yet and there could be more selling pressure. This is shown by the data from glass, specifically Unrealized Net Profit/Loss (NUPL), which is a measure of a network’s total unrealized profit and loss as a percentage of a market’s market capitalization. This metric indicates that less than 25% of market value is held in profit. This has happened 3 times since 2015 and each time it has led to a capitulation phase with further declines in the following months.

Additionally, the bitcoin miner’s net turnover shows that bitcoin miners have been net sellers over the past month, with the miner’s distribution (selling pressure) peaking at around 8000 bitcoins per month. I believe this selling pressure from the miners may be due to the Bitcoin price drop, which reduced the profitability of the miners. However, I am not alarmed by this behaviour, as Intel is releasing their second generation bitcoin mining chips, which are much more efficient than those of most competitors. Cryptocurrency miner Hive Blockchain has sold around 10,000 ETH to pay for Intel Bitcoin mining rigs. These will go into mass production in early 2023, potentially increasing the profitability of bitcoin miners. I believe this will be a catalyst for increased adoption of bitcoin mining globally, as it can help mining companies achieve their ESG (Environmental, Social and Governance) goals.

The main factor in determining whether there will be further decline in the coming months is continued high inflation. US CPI data It will be released for May on Friday and is expected to be 8.2% y/y which is 0.1% lower than the April CPI reading of 8.3%. Although the expected reading is similar to lower inflation, I think we will need to see a larger drop for the Fed to change course, and thus continue the bullish cryptocurrency.

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