Bitcoin (BTC) miners continue to capitulate as the network’s hashrate faces its worst downward trend since 2022. The activity has begun to show signs of capitulation in the past few months, casting a shadow over the security of the cryptocurrency.
Bitcoin miners are showing signs of surrendering, holding their BTC reserves to a two-year low, Finnbold reported on June 14. The report also highlighted that average production costs are exceeding revenues, causing companies to operate at a loss.
Currently, network hashrate data, which shows the productivity rate of activity, continues to trend downwards in a worrying pattern. In particular, Memory Pool Space This shows that since the April 27th peak of 639 EH/s, there have been two consecutive lower highs.
Why is Bitcoin’s hash rate declining and what does it mean?
The industry should expect a recovery at this point, as it did during the 2022 bear market. However, a new low of 572 EH/s was recorded on June 27, bringing it back to values last seen in March, paving the way for further lows with dramatic implications for Bitcoin security.
Essentially, when weak Bitcoin miners shut down or remove their mining machines (ASICs), the hash rate drops, which inevitably leads to centralization of wealthy miners who can continue to operate in unfavorable conditions, thus reducing the security of the network, given the proper decentralization and reliability of decentralization of Proof of Work (PoW).
Bitcoin analyst Joe Barnett posted a similar warning on June 26, and the situation has only gotten worse as time goes on.
Bitcoin miners’ holdings fall to lowest level in two years
Meanwhile, Bitcoin miners have continued to sell off, with holdings trending lower to even lower levels than reported earlier this month. Santiment These entities indicate that they currently hold 1.8 million BTC after aggressive selling since February 2024. This figure is the same as the number miners held in April 2022, when BTC was trading below $40,000.
Additionally, despite the decline in hash rate, the average cost of mining Bitcoin remains above $80,000. Micro Micro The data suggests that miners may not only capitulate by selling mining equipment or ceasing operations, but also by selling BTC at a price lower than the average cost of mining.
Bitcoin mining benefits from economies of scale
Bitcoin mining is largely underfunded and an unprofitable activity for small and mid-sized miners, according to multiple sources familiar with the matter.
Interestingly, these companies often hedge their operations with energy futures contracts or leverage through borrowing and selling stock. Some also rely on side businesses to survive, such as selling ASICs to miners or collecting mining pool fees. Additionally, these structures can generate heat for homes and industries.
These dynamics could heavily favor economies of scale, with larger miners receiving higher rewards from the network and scaling up, while smaller and mid-sized players could be forced to withdraw from the activity by selling off their BTC reserves and/or mining infrastructure.
In the long term, Finnvold’s report suggests, these events could lead to increased centralization among a few large organizations.
Moreover, selling pressure from these few Bitcoin miners could prevent the BTC price from surging unless demand picks up. Meanwhile, Bitcoin spot and on-chain trading volumes are hovering at record lows, compounding the challenges ahead.
