Miner Capitulation and Network Performance
Crypto analyst James Van Straten has highlighted that recent data concerning the Bitcoin network points to increasing pressure on miners. Van Straten's analysis indicates that the network's hashrate, which quantifies the total processing power dedicated to Bitcoin, has seen a reduction of approximately 15% since its peak in October. This sustained decline suggests that miner capitulation has been an ongoing process for nearly 60 days.
The data reveals a significant drop in average network power, which had hovered around 1.1 zettahash/second (ZH/s) in October, falling to levels as low as 977 exahash/second (EH/s). This decrease is attributed to reduced profitability, leading some miners to deactivate their equipment or cease operations altogether.
Hash Ribbon Indicator and Market Implications
This trend is further corroborated by Glassnode’s Hash Ribbon indicator, a metric designed to measure miner capitulation. The indicator experienced a reversal on November 29th, a date that coincided with Bitcoin reaching a price low of around $80,000. The reversal of the Hash Ribbon signifies that miners were compelled to sell Bitcoin to sustain their operations, consequently introducing additional supply pressure into the market over the short term.
Historical Trends and Future Outlook
Despite the current pressures, Van Straten posits that capitulation events have historically served as reversal signals. Assessments by VanEck suggest that extended periods of miner stress have frequently preceded new upward momentum in Bitcoin's price. As less efficient miners exit the market, the selling pressure gradually diminishes, allowing for price recovery. The Hash Ribbon indicator also offers a potentially optimistic outlook, suggesting that the most intense phase of capitulation may have passed, as evidenced by the 30-day hashrate average rising back above the 60-day average.
Difficulty Adjustments and AI/HPC Shift
Concurrently, the declining hashrate is triggering adjustments in mining difficulty. Bitcoin mining difficulty is projected to decrease by an additional 4% on January 22nd, settling at approximately 139 trillion. This adjustment represents the seventh negative difficulty change in the past eight periods.
An additional contributing factor to short-term selling pressure is the reallocation of some mining operations towards artificial intelligence (AI) and high-performance computing (HPC) endeavors. Reports indicate that companies such as Riot Platforms are engaging in Bitcoin sales to fund substantial AI and HPC investments. Analysts suggest that while these sales may exert downward pressure on prices in the immediate future, the completion of the capitulation process could pave the way for a more robust market structure in the medium term.