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Here’s why miner capitulation is actually good news for Bitcoin

Here’s why miner capitulation is actually good news for Bitcoin

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Bitcoin’s highly volatile price has destroyed most of the crypto market and is now dragging miners down with it. Although miners are often considered the bedrock of the Bitcoin network and its most sustainable players, they suffer from rapidly decreasing profit margins.

Bitcoin mining difficulty is currently only 1% below its all-time high, squeezing a large portion of miners out of the network. Mining profitability is reaching one of its lowest points, with mining revenue per Terra hash falling below $5,000 in early September.

btc miners income
Chart showing mining revenue per Terra hash (source: Glassnode)

Due to increased mining difficulties and decreased profitability, miners were forced to sell their Bitcoin holdings en masse. Miners sold more than 12,000 BTC since July, when the total supply of Bitcoin held in mining addresses peaked at 1.84 million BTC.

Data from Glassnode has shown that a similar capitulation occurred in November 2021 when Bitcoin hit an all-time high. At that time, miners sold about 30,000 BTC. If the miners follow a similar pattern throughout the fall, we could see even more selling in the coming weeks.

btc miner net position change
Chart showing the 30-day change in Bitcoin supply of mining addresses (Source: Glassnode)

While hash tapes indicate that the worst part of surrendering is over, shrinking miners paint a different picture.

btc Balance Miner wallets
Chart showing Bitcoin balance in mining wallets (Source: Glassnode)

However, the massive selloff we’ve seen over the past two months may actually be good for Bitcoin in the long run. Although the swings in mining profitability are brutal, they clean the network of unprofitable activity and weak miners who can’t handle the volatility. When the market stabilizes, the Bitcoin network is left to the shoulders of the most resilient and profitable miners – strengthening it for future cycles and volatility.

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