If you are an ardent follower of happenings in the crypto market on social media, you have no doubt heard of “miner capitulation.” It is the latest buzzword being thrown around by analysts in the crypto sector. However, not many people in the crypto sector understand what it means. Even those who do have not fully internalized the impact it could have on the crypto market.
Defining Miner Capitulation
In the context of Bitcoin mining, miner capitulation occurs when miners running small-scale operations are forced to stop mining. This occurs when the cost of mining Bitcoin outweighs the rewards they are getting. Several factors may cause this. They include a sudden rise in power prices or a sudden drop in Bitcoin prices.
When the latter occurs, miners using old and less-efficient mining rigs have to shut down their operations and sell the Bitcoin holdings. They do this to acquire funds to upgrade their equipment. They may also be forced to do this to pay bills such as rent, buy food, as other expenses. Besides selling their rigs, miners may decide to exit the Bitcoin market and begin mining other profitable coins based on the technology they are using. Cole Garner, a crypto analyst with a huge following on Twitter, took the time to create a lengthy Twitter thread to explain the issue.
The Effects of Miner Capitulation
Miner capitulation begins when the price of Bitcoin begins sliding. The crypto market is currently in a bear run. As you can see from the price bar at the top of this page, the price of Bitcoin has slid by over 10 percent.
With the price hovering at around $7000, more small-scale miners will begin offloading the Bitcoin reserves. The result is that this sell-off can cause the price of BTC to fall even more. This results in a vicious cycle that extends the bear run, causing even more people to offload their BTC holdings.
Bitcoin is worth about $150 billion today. As a result, a small number of miners capitulating should not be an issue. However, this has occurred in the past. Cole Garner gives the example of 2018 in his Twitter thread. This was around the time that the price of BTC fell from $6000 and quickly slid to $3000 in a very short time. The vicious cycle of small-scale miners selling off their holdings is something that everyone in the crypto sector should understand and factor into their trading decisions.
It is Already Happening
It would appear that market capitulation is already happening. A recent post on Reddit by Bytetree, show that a miner recent offloaded $17 million worth of BTC. The sale occurred at a time when the price of BTC was struggling to stay above $8000. With the price of BTC nearing the $7000 mark, even more miners will likely capitulate due to the market conditions. AS the price continues to drop, it might also present an opportunity to buy BTC and hodl.
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