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Miner Capitulation: Will It Kill Bitcoin?

 


Miner capitulation is a recurring narrative because it can play a role especially during bearish markets. The term is associated with the idea that miners simply have to throw in the towel because the Bitcoin price falls so low that they can no longer cover their production costs.


In fact, it's difficult to pinpoint exactly how the miners are doing because exact locations, equipment, and production costs are usually closely guarded trade secrets. Nevertheless, statements can be made as to how the mining industry is doing, because certain key data can be found out transparently. These include, among other things, the electricity costs in the most popular regions, but also the costs for the hardware and finally the global computing power that can be read out.


In some cases, larger companies also publish their own data and associated expectations of how the market will develop. Based on this data, it shows that it has recently become significantly more expensive to produce Bitcoin than to buy it.


For Bitcoin, that doesn't matter

The good news is that it won't matter to the bitcoin network if certain companies actually go out of business. This is primarily due to the so-called difficulty, which decreases when less computing power is available and increases when more power becomes available.


The difficulty is recalculated on average every two weeks. The network remains secure and the rate at which “fresh” BTC is circulated and blocks are produced remains the same. Bitcoin is therefore excellent at handling when individuals or companies make bad decisions and mining is no longer worthwhile for them.


With regard to miner capitulation, difficulty also plays a role because it can be used as a measure of how many miners had to shut down. If it bottoms out after a low, the data situation can be interpreted in such a way that the capitulation is considered complete.


This does not necessarily apply to the market

From the perspective of the market, however, things look different, because a number of factors play a role here. So the starting position is extremely important and it is very bad at the moment. Because with the currently falling prices, the probability that more miners could be affected increases.


A second important factor is the size of the respective miners. Experience has shown that companies that have been active on the market for many years and have sufficient funds have proven to be resilient. Smaller companies that have little reserves and cannot raise additional funds will inevitably have to give up.


However, it remains controversial whether the selling pressure from the less relevant players can have additional effects on the market. Finally, the risks of a possible failure of Celsius and the aftermath of 3AC's bankruptcy seem much more ominous. An often prophesied “death spiral”, in which the miners gradually have to sell more and more, has never materialized in the past.


The risk of contagion within the market from the possible bankruptcy of lending platforms and funds is ultimately a much more serious problem than a cyclical sell-off by smaller miners. Nevertheless, investors should be careful, because in such an unstable market environment even the smallest drop can overflow the camel's back.

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