The queen of cryptocurrencies had one of her chaotic years in 2022. However, 2023 starts on a positive note despite the bear market. Indeed, the course of the currency created by Satoshi Nakamoto has returned to growth. This is rather good news for miners who have seen their profitability decrease as the price of bitcoin (BTC) fell. Let’s see to what extent they can influence its evolution.
Key points :
- With a price over $20,000, bitcoin (BTC) is showing resilience.
- Miners are in turmoil with declining profitability and reserves.
- The miners’ net FX position suggests less selling press in January 2023.
- The United States and China centralize more than 65% of the world’s mining pools.
The current analysis was prepared in collaboration with the Bitget crypto exchange platform. Present in more than 100 countries, Bitget is a cryptocurrency exchange created in 2018. With a user base of more than 8 million, the digital asset platform offers a variety of services to its customers. These include derivatives trading, spot trading, social trading and copy trading. Thanks to its innovative products, Bitget appeals to both amateurs and professionals.
Fasten your seatbelts, it’s taking off for bitcoin (BTC)
For the first time in several weeks, bitcoin (BTC) price broke above the $20,000 mark. In a previous analysis, we already mentioned a forecast increase for the month of January 2023. This is confirmed this week with a price taking off.
Graph 1: Evolution of the bitcoin price
As can be seen below, bitcoin price has been in better shape for the past few days. One of the favorable conditions for this uptrend is likely falling inflation.
Chart 2: Evolution of the Nasdaq index
This breakthrough is consistent with that of the Nasdaq which is also experiencing favorable winds as can be seen in the graph above.
The slowdown in inflation for the first time since 2020 in the United States has something to do with this performance, which may be the sign of a bull-run. However, more is needed to maintain the course of this increase. In this case, the mining which is a preponderant variable in the evolution of the market.
SOS, minors in difficulty
Mining is a vital function in the currency ecosystem created by Satoshi Nakamoto. The market is therefore sensitive to various related events. As an example, let’s remember how China’s announcement of a cryptocurrency mining ban in 2021 caused the price of the queen of cryptos to plummet.
Graph 3: Monthly profitability of miners
Miner profitability includes rewards and transaction fees. This is at its lowest over the past two years. Moreover, in December 2022, it was 467 million dollars. We are therefore a long way from a monthly profitability of $1.58 billion in May 2021.
Let us recall the fundamentals in terms of mining profitability. It is a function of three main factors: the price of bitcoin, the hashrate and the price of electricity. Let’s take a closer look at these factors in the current state of the market.
The price of bitcoin (BTC)
Graph 4: Evolution of the price and profitability of miners
The profitability and the price of the queen of cryptos follow the same downward curves. With the price of bitcoin (BTC) nosediving, miners’ earnings began to melt away like snow in the sun. A low price does not allow the miner to be profitable. Rather, it has the effect of forcing him to sell at an insignificant price. Also, a minor who recovers his expenses under these conditions is miraculous.
The fall in the price of bitcoin (BTC) therefore forced some miners to stop their equipment, because the activity was no longer profitable at all. Similarly, some like Core Scientific have filed for bankruptcy in order to avoid catastrophe. Fortunately, this did not tarnish investors’ confidence in this miner since its share price jumped 273% after the announcement of its bankruptcy.
It represents the computing power necessary for the validation of transactions on the bitcoin blockchain. Its increase reflects better network security. Conversely, its decline means less trust in the network.
Figure 5: Global mining map
Last December, the hashrate was down almost 40%. We had not seen such a situation since the ban on minors in China. However, part of the explanation can be found in the land of Uncle Sam. For American miners, it was a question of participating in the reduction of their energy consumption in order to allow families to face the harsh weather conditions with the snow storm. It should be noted that just under 40% of the mining is done in the United States.
The other part of the explanation lies in the stopping of the mining machines. For good reason, the interest of mining is to have a production cost of a bitcoin lower than the selling price. However, the current state of the current market makes the cost of some machines higher than the selling price of a bitcoin (BTC).
The breakeven point, where rewards and fees equal mining costs, has now passed for many miners. Hence the need for some to sell their equipment to hope for a possible return on investment.
The result of this situation is a fall in machine costs of more than 80%. According to the editorial CoinTelegraph, it is the AISC machines known to be the most efficient that win. For example, the miner BitDeer had communicated last June the cost of stopping certain machines:
The price of electricity
Energy is essential to operate machinery. It is therefore a major issue in the profitability of miners. The average consumption was $0.05 per kilowatt a few years ago. However, with the current geopolitical context, the price has risen to around $0.08. This is more pressure for miners trying to find optimization solutions.
Indeed, some have chosen to put their suitcases in Latin America, particularly in Paraguay which produces more electricity than necessary. It is therefore a land conducive to the proliferation of mining. Others forge partnerships with electricity producers, such as in the United States, where miners agree to reduce their consumption if necessary in return for a preferential rate.
Who tracks miner movements, decodes bitcoin (BTC) trends
Miners generally express the overall sentiment of the market. The economic interest they have in bitcoin (BTC) pushes them to find the profitable solution for their investments. Because of this, they will always act with a view to profit from the queen of cryptos.
For this purpose, it is wise to be attentive to their movements in the market. In general, miners can either keep the rewards and fees they get from validating transactions or sell them on the market in order to make their investments profitable.
Miners poised to tip the scales one way or the other
The principle applied is to sell when a bearish movement is anticipated and to hold when a price increase is anticipated. For now, this selling pressure is generated by miners’ desire to keep their businesses afloat.
Graph 6: Evolution of bitcoin (BTC) miners’ income over one year
The graph shows declining reserves at the end of 2022. In reality, this means that miners are giving away the bitcoins they hold. They therefore anticipate a bearish price.
Graph 7: Net position of miners over 7 days
This month of January marks a break since the net positions of miners are green. In other words, miners would refrain from selling. Therefore, this may translate into an anticipation of a rising bitcoin (BTC). It is then possible to see a trend towards conservation appearing while waiting for the price to explode. This scenario is the door open to the scarcity which will contribute to increase the price of the currency created by Satoshi Nakamoto.
Three miners lead the dance in the bitcoin (BTC) market
Graph 8: Distribution of pools of miners in the world in December 20222
The leading trio is made up of the American Foundry and the Chinese AntPool and F2Pool. Together, they control 67.6% of the market. The conclusion is that China’s ban on mining was just a statement with little effect.
In view of the bear market context, a centralization of mining leaves smaller players in disarray. In other words, their chances of survival are compromised because they do not have the financial and technical means to survive the storm.
Consequently, these small players could be called upon to sell their bitcoins (BTC) on the market if the price begins its descent again.
The movements of miners are to be scrutinized, as they are determinants in market trends. The recent upward trend in the price of bitcoin (BTC) bodes well for the current year. The mining as to place is not yet out of its turmoil. Indeed, all of its profitability variables combined, except price for now, put miners in a bad spot. Rising interest rates also adds fuel to the fire. Thus, miners have difficulty accessing financing to absorb their debt linked to the current economic situation. However, this could change with lower inflation and a potential rate cut by the US Federal Reserve (FED). Similarly, miners have started to release bitcoin (BTC) selling pressure. Although the specter of capitulation still lurks around, the miners do not seem to have said their last word. Also, this upward trend of the queen of cryptos could well be the premise of a bull-run.
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