The post-halving Bitcoin world continues to throw curveballs. After a hashrate spike to celebrate the cut in block rewards in April, Bitcoin’s computing power has taken a nosedive. down 20% in recent weeks.
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This unexpected drop has fueled a debate among analysts, with some signaling a sell-off and others urging caution.
Bitcoin: Hashrate Hike or Miner Exodus?
Hashrate, a measure of the combined processing power dedicated to securing the Bitcoin network, typically rises after a halving event as miners invest in more powerful platforms to compete for the lower rewards.
This time, however, the trend defied expectations. Experts like Maarunn, a pseudonymous analyst at CryptoQuant, believe this is a sign of one possible ‘capitulation of miners’.
Less efficient miners are likely to throw in the towel now. The halving, which saw block rewards halved, put pressure on profit margins for miners using older equipment. As these miners cease operations, the hashrate drops.
Hash Ribbons Flash warning sign
Maarunn’s theory is supported by a technical indicator called Hash Ribbons. This metric tracks the difference between short-term and long-term hashrate averages. When the gap widens, it indicates a decline in mining activity, possibly due to the removal of less efficient miners.
The recent drop in hashrate has led to a spike in Hash Ribbons, historically a sign of miner capitulation that has often coincided with price drops for Bitcoin.
Bitcoin Miners Selling Out?
Further adding to the capitulation theory is a decline in Bitcoin’s miner reserve. This metric tracks the amount of Bitcoin held in wallets associated with miners. A decline in the reserve suggests that miners could lose their mined coins, possibly to cover operating costs or exit the market altogether.
Undervaluation signal or cyclical dip?
Maartunn interprets these signals as a bullish indicator. Hash Ribbons often point to opportune times to buy, he argues. His claim is supported by the market value to realized value ratio (MVRV), which suggests that Bitcoin may be undervalued.
This metric compares the current market price to the average price at which all Bitcoins were acquired. A negative MVRV, like Bitcoin’s currently, suggests the asset is trading below its historical cost basis, potentially signaling a buying opportunity.
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Not everyone is on the capitulation train
However, not all analysts are convinced. Some argue that the drop in hashrate could be temporary, perhaps due to factors such as extreme weather disrupting mining operations in certain regions.
Furthermore, the post-halving period is typically a period of adjustment for miners, and a short-term hashrate fluctuation does not necessarily mean a mass exodus.
The post-halving Bitcoin landscape is still evolving. While the drop in hashrate and other signals point to a potential buying opportunity, especially for long-term investors, the situation remains fluid.
Featured image from Shutterstock, chart from TradingView