There are still six months before the BTC halving, but miners have "surrendered"?

This article comes from beincrypto & blockonomi, original author: Daniel Phillips, Dick Chong

Odaily Planet Daily Translator | Moni

In the past few weeks, as the price of Bitcoin has fallen and the difficulty of mining has risen sharply, Bitcoin miners big and small have suffered again. Some people believe that this storm may cause miners to completely "capitulate", which will further have a negative impact on the price of Bitcoin.

We know that the main costs of Bitcoin miners include: mining machine purchase, mining machine maintenance, and point non-point ...

In fact, if you follow cryptocurrency and blockchain industry social media and websites, you will find that one of the terms mentioned repeatedly during this period is "miner capitulation". The problem is that few investors really know what this means and what impact "capitulation" will have on Bitcoin and the broader cryptocurrency market. Therefore, we decided to unravel more about the meaning of this term and how it will affect the price trend of cryptocurrencies when "miner capitulation" occurs and bulls fail to intervene.

"Miners surrender"? What is that?

"The miners surrender! The miners surrender!"

When you hear such calls on social media, it seems like a bunch of people talking nonsense. However, cryptocurrency analyst Cole Garner recently carefully interpreted the meaning of this term - long story short, "miner capitulation" refers to when the price of Bitcoin falls and mining equipment lags behind in technology, smaller non-professional mining operations will get into trouble and be "forced into a corner" (get backed into a corner).

In this case, in order to keep their business running, Bitcoin miners usually sell all the BTC they have earned from mining at once, and then upgrade their mining machines and mining systems after cashing out. This may not sound harmful to the market, because miners themselves need to sell Bitcoin to pay for daily business operations. But according to Cole Garner's analysis, this phenomenon will become a vicious cycle, especially when Bitcoin mining has limited profitability. He pointed out:

“When miners run out of liquidity, they will panic sell, causing the price of Bitcoin to fall. At this time, longs will be squeezed, causing more people to choose to sell to stop losses, and then miners will not be able to sell at the expected price, and their own ‘lunch’ will be lost.”

Miner capitulation is a sign of a bearish crossover node, which Cole Garner calls a “Hash Ribbons indicator reversal,” indicating that miners have stopped allocating resources to improve Bitcoin’s security.

The Hash Ribbons indicator shows the trend of Bitcoin hash rate and the health of the Bitcoin mining ecosystem by quantifying the relative growth rate of hash rate. The specific value is the difference between the average value of Bitcoin hash rate in the past month and the average value of the past two months divided by the average value of the month. In recent times, the performance of the Hash Ribbons indicator has been extremely rare. Because the indicator value has been running sideways below 0.5% for more than a week, but has not fallen below the 0 axis, this shows that miners have been struggling for a while and have been reluctant to make a choice whether to "surrender".

Charles Edwards, a cryptocurrency analyst at TradingView, summarized the “miner capitulation” incidents that have occurred in history:

• April 2012: 2 days

• December 2012: 2 days

• December 2014: 2 days

• April 2015: 21 days

• November 2016: No Surrender

• October 2018: 5 days

• March 2019: No Surrender

• May 2019: No Surrender

What will happen next in the Bitcoin market?

A concentrated dumping of Bitcoin by a few large miners doesn't sound likely to disrupt the market, after all, Bitcoin's market value exceeds $100 billion, and if other Bitcoin-based altcoins and derivatives are taken into account, the market size may be even larger. However, although the Bitcoin price and hash rate seem to be unrelated, they are inextricably linked. Looking back at historical performance, it can be found that shortly after the concentrated exit of miners, the market often ushered in a new stage of Bitcoin lows, so investors should pay attention to "miner capitulation", at least I am very worried.

The figure below is an analysis chart provided by Cole Garner, which shows the price trend of Bitcoin in 2016. The reversal of the Hash Ribbons indicator caused the price of Bitcoin to fall by 30% a few days later. Although a breakthrough was achieved later, it had previously experienced weeks and months of consolidation.

In fact, this is not the only Hash Ribbons indicator reversal. Cole Garner revealed that the Hash Ribbons indicator reversal occurred again in mid-November 2018. If you still remember this time, you know that the price of Bitcoin plummeted by 50%, from $6,000 to $3,000, almost collapsing. On the other hand, Bitcoin and most cryptocurrencies have been in a downward trend since July 2019, and this time the price of Bitcoin has fallen by more than 38%. Not only that, since July, the difficulty of Bitcoin mining has increased by 30%, which means that in the past four months, the mining efficiency of Bitcoin miners has decreased by 30%, and the price of BTC for mining rewards has dropped by nearly 40%.

As mentioned before, once miners find themselves unprofitable, they will sell Bitcoin, which will then form a vicious cycle. When fear spreads throughout the market, it will cause prices to fall rapidly.

Therefore, those cryptocurrency miners operating on a smaller scale will be the first to get into trouble and will either stop mining or wait for Bitcoin to recover in value sooner rather than later. However, as these cash-strapped miners sell their Bitcoin, this could further negatively affect the price of Bitcoin.

Eventually, "miner capitulation" could lead to a tipping point for small and medium-sized miners, further reducing prices until only the most profitable miners are left, and the price decline ends. Throughout this period, Bitcoin mining difficulty will decrease as the hash rate decreases, and once "miner capitulation" reaches its maximum, Bitcoin mining difficulty will eventually reach its lowest level, and then a potential trend reversal and a bull run could occur.

Is the bad luck starting again?

If the technical analysis by Charles Edwards above is correct, there is a 60% chance of “miner capitulation” occurring in December 2019.

In fact, "miner capitulation" has already had an impact on the Bitcoin market. According to an analysis chart (shown below) published by cryptocurrency analyst "Bytetree" on the Reddit Bitcoin forum, Bitcoin miners have dumped $17 million worth of Bitcoin into the market above $8,000. Of course, the impact of selling $17 million of Bitcoin on the current Bitcoin market price trend may not be too great, but if this situation intensifies in the next few days, it will be like what Cole Garner described earlier: a vicious cycle will be formed, and when fear spreads throughout the market, it will cause prices to fall rapidly.

Cryptocurrency analyst "Ezy Bitcoin" concluded by analyzing the "Super Trend" indicator: $7,900 is the most important support level at present. If it falls below, it will enter a bear market again, and if it rebounds, the bull market will continue. It is reported that "Super Trend" can provide accurate buy or sell signals in trending markets by combining moving averages and other technical indicators. (At the time of writing this article, according to Coinmarketcap data, the trading price of Bitcoin was $8,029.38, with a 24-hour drop of 2.13%.)

What’s “interesting” is that some people think we can see “miner capitulation” as an opportunity to get Bitcoin cheaply, because the market generally expects Bitcoin prices to rise before the block reward halving in May 2020, and Bitcoin prices will either stabilize or gradually recover in the coming months.

While no outcome is certain at this point, “miner capitulation” often leaves investors with some buying opportunities. According to Charles Edwards, if “miner capitulation” does occur, the subsequent positive momentum may be a signal to buy Bitcoin.