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Will the bitcoin miners capitulate soon?

 


Something that is always interesting is evaluating Bitcoin mining activity , especially in relation to the price and the broader market.


After all, the miners are the group that gets the freshly created bitcoins as the blockchain continues to grow. Receiving this revenue in the network's native coin means their actions can be directional.


However, something remarkable is happening right now. The hash rate, i.e. the amount of computing power that the Bitcoin network uses - i.e. the number of miners - increases. And it's rising sharply.

The hash rate hits one all-time high after another. However, the price crashed before trading sideways around the $20,000 level for the past few months.


That's unusual. As the chart above shows, during our most recent violent crash - May 2021 - the hash rate also dropped. This is natural – again, these miners' revenue is Bitcoin, so why wouldn't mining activity drop in response to a major price drop?


Instead, the hash rate - and the difficulty of the network - remains high. Most people say that's 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 is.


But does that make sense? Let's look at this from an economic perspective. Are miners not selling as much as they should? It seems like miners are not letting up while the price is running sideways after this crash. One might point to Ethereum 's move to Proof-of-Stake in September to attract more miners to Bitcoin, but the data doesn't really add up.


I recently wrote about how I believe we may be just one event away from an evil red wick for Bitcoin. Looking at the underlying mining data makes me nervous again. Again, this is far from certain - and more of a guess - but let's look at the last time we had a rising hash rate with a falling price.

Let's zoom in a bit on this period - the chart above is a little hectic. If we look into the 2018 time frame, we can see exactly how the same pumping price hash rate occurred despite the falling price. And then look what happened to the price at the end of 2018.

So this is worrying. And there are people who call this a bearish indicator. But anyone following my analysis knows that I'm not exactly comfortable extrapolating past Bitcoin cycles to today.


Yes, that happened in 2018. But look at Bitcoin back then. Did you even hear about it? Because many didn't have it -- it was still a niche stock that wasn't yet making a fuss in the trading world. Not to mention that the macroeconomic climate is completely different today as we are in the midst of a new interest rate paradigm. A point to remember when looking at past cycles: none of these cycles occurred while we were in the midst of a major economic downturn.


But at the same time, it's not just the fact that this has happened before. I'm just a little surprised that miner sales aren't a bit higher here, or why the hash rate is increasing so aggressively.


So, to sum up, this indicator doesn't make me tap the "SELL" button. But I like using mining data in conjunction with my broader analysis and it's an odd occurrence. And as I wrote last week, I fear that this $20,000 cancer movement could end up with a red wick. It is a psychologically important level and once the price falls well below this level, there is not much resistance left.


There are too many variables in the broader market that can easily go down, and bitcoin hasn't dropped all that much since the summer contagion - the stock market has been even worse. The underlying mining activity, while not amplifying them, cannot allay these concerns.

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