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Are Bitcoin miners about to capitulate?

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One thing that is always interesting is to evaluate mining activity in Bitcoin, especially in conjunction with what is happening with the price and the market in general.

After all, miners are the group receiving these newly minted Bitcoins as the blockchain continues to grow. Receiving this income in the network’s native currency means that their actions may be indicative.

However, something remarkable is happening right now. The hash rate, i.e., the amount of computing power used by the Bitcoin network, i.e., the number of miners, is increasing. And it’s going up a lot.

But at the same time, the price is going down.

We are recording an all-time high after another all-time high in the hash rate. However, the price fell, before trading sideways in recent months around this $20,000 level.

This is unusual. As the chart above shows, the last time we had a violent crash – in May 2021 – the hash rate also fell. This is natural: again, the income of these miners is Bitcoin, so why shouldn’t mining activity fall in response to a sharp drop in price?

Instead, the hash rate – and the difficulty of the network – remains high. Most people say this is a good thing. And they are right: the higher the hash rate, the more secure the network. And the more secure the network, the healthier Bitcoin will be.

But does this make sense? Let’s look at it from an economic point of view. Are miners not selling as much as they should? It seems that, while we would rather walk away after this drop, miners are not getting carried away. You can point to Ethereum’s move to proof of stake in September as attracting more miners to Bitcoin, but the dates don’t really match up.

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Let’s check if miners are selling (graph via arcane search).

After the summer surrender, they didn’t really sell. But could this change soon?

I recently wrote about how I think we could be one event away from a nasty red fuse for bitcoin. Looking at the underlying mining data, I’m getting more nervous again. Again, this is far from certain – and is more of a hunch – but let’s check the last time we had a rising hash rate with a falling price.

In mid-2018, it happened… and it wasn’t good.

Let’s zoom in a little closer to this period: the graph above is a bit of a rush. If we look at the 2018 window, we see exactly how this same increase in the hash rate occurred despite falling prices. And then look at what happened to its price at the end of 2018.

So that’s concerning. And some people are pointing to it as a bearish indicator. But as anyone who follows my analysis knows, I’m not very comfortable extrapolating past Bitcoin cycles to the present day.

Yes, that happened in 2018. But look at bitcoin back then – had you heard of it? Because a lot of people didn’t know about it: it was still a niche asset, not making noise in the trading industry world. Not to mention that the macroeconomic climate is totally different today, with us squarely in a new interest rate paradigm. One point that should never be forgotten when examining previous cycles: none of these cycles occurred when we were in the midst of a broader bear market in the economy.

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But at the same time, it’s not just the fact that it happened earlier. For me, I’m a little puzzled as to why the miner selling isn’t a little bit higher here, or why the hash rate is so aggressive.

So, in conclusion, this indicator doesn’t make me run to the SELL button. But I like to use mining data in conjunction with my broader analysis, and this is a curious development. And as I wrote last week, I fear this crab move around $20,000 will end in red wick. That’s a psychologically important level, and once you get down there, there’s not much resistance.

There are too many variables in the broader market that could easily go south, and bitcoin hasn’t given up much since the contagion wave in the summer – stocks have actually been worse. This underlying mining activity doesn’t alleviate these concerns, even if it doesn’t accentuate them.

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