Bear Market Scene keeping BTC dip buyers at a loss…
Image by Gerd Altmann from Pixabay
Well, bear markets are also when investors keep buying the dip as prices of crypto fall, but as the price still constantly decline, these crypto dip buyers are always at a loss):...
Right… So as BTC’s prices have been dipping since November of last year, any one who bought BTC at dips till now are at loss since BTC is below $20,000 for a while now…
Now, BTC has found support at 16,000$ and it has corrected by atleast 70% from its November ATH price of $65,000, but still BTC is likely to fall further to new lows to 14,000$, $12,000 or $10,000 price levels. So we can expect a 85% correction to BTC’s price from its ATH.
Bitcoin Miner Capitulation to take place with price of 1 BTC below 18,300$
There is an immediate factor making further price falls of BTC now imminent. This factor is Bitcoin Miner Capitulation.
What I mean here is that the time has arrived when many BTC miners are forced to wind up their business because mining BTC even at break-even levels is difficult now as the market price of BTC is below the cost of producing 1 BTC for miners.
Glassnode, a popular cryptocurrency data analysis site on Oct 3rd published a report saying that the cost of producing a BTC for miners was 18,300$ and during that period of time BTC’s price was hovering dangerously close to this range with BTC’s price moving between 18400$ to 20,600$ price ranges.
When BTC’s price should fall below 18,300$, miners cannot easily cover the cost of producing one BTC by selling their mined BTCs, so operating at a loss they are bound to wind up their BTC mining operations.
BTC miners have expenses of investing on BTC mining equipment, electricity bills, rent and salary payments which they cover from time to time selling their mined BTC.
BTC mining since the past few years is only possible to be undertaken by large Bitcoin mining firms, some are publicly listed and they have good balance sheets.
This is because it takes a lot of capital to run a Bitcoin mining business, and the industry is very competitive these days. This means they need to have the latest Bitcoin mining equipment so they can mine Bitcoin in the most capital efficient way.
As BTC’s price falls below the cost it takes to mine 1 BTC, it pushes Bitcoin mining businesses into acute distress.
A natural consequence of this would be Bitcoin miner capitulation that would have many Bitcoin Mining firms wind up their operations, sell their Bitcoins. This would bring down the hash rate of Bitcoin.
Challenging state for Bitcoin miners with Bitcoin’s Network Difficulty increased to ATH
*ATH (All Time Highs)
Bitcoin Hash Rate is the computing power that’s securing the Bitcoin Network. Until very recently, for a long while Bitcoin Hash Rate was growing, touching ATH, even though the price of BTC was falling.
In other words, new Bitcoin mining players were entering to mine Bitcoin, even as the price of BTC was decreasing making it more and more unprofitable for Bitcoin Miners to function.
Bitcoin Total Hash Rate Source
Since, Bitcoin Hash Rate was increasing, meaning more Bitcoin miners were entering the space to mine Bitcoin, the Bitcoin’s Network difficulty also kept increasing to a ATH range.
This meant the difficulty to mine a Block of Bitcoin kept increasing, necessitating Bitcoin miners to invest on more efficient Bitcoin mining equipment to mine BTC.
Bitcoin Network Difficulty data chart. Source >>
The problem here is that this investment on new Bitcoin equipment adds to the cost of mining 1 BTC, impacting profit margins of Bitcoin mining businesses.
Bear Market Bottom may follow after the Capitulation of Bitcoin Miners occurs
Now, the Bitcoin Hashrate has fallen since November 12th but the Bitcoin Mining difficulty still sits at ATH ranges. So it is likely, Bitcoin Miner Capitulation is now beginning to take place. This will have Bitcoin Miners being forced to close their Bitcoin Mining operations triggering a steep fall in Bitcoin’s hash rate and Bitcoin Mining Difficulty.
These Bitcoin Miners will end up selling their mined Bitcoins as well to cover whatever cost of operations they incurred, triggering a deep fall in BTC prices.
Image by Pete Linforth from Pixabay
This is the remaining situation to play out, and once Bitcoin Miner Capitulation completes, one can say we are close to finding the bottom of Bitcoin’s price fall and it should be a good time to buy the BTC dip with more confidence.
It is very unlikely, BTC dip buyers will be at a considerable loss from buying the dip at that time, as BTC accumulation phase would occur from here on, as the stage plays out for BTC’s next bull run phase!!
There are several other reasons for BTC’s price to continue it’s downward spiral
There are several other reasons why BTC’s prices are to fall to new lows yet such as unfavorable macroeconomic and geo-political climate that already caused BTC’s prices to fall to 20,000$. Yes, we are familiar with it, FED is increasing interest rates, means there is no excess USD liquidy to spend on buying any speculative assets. Ongoing, Russia-Ukraine war causing complications with prices of oil and gas set to increase, so there’s no end to inflation.
Then we had FTX collapse contagion playing out with Genesis Capital and Gray Scale now in the spotlight for facing liquidity crunch issues with their balance sheet having too many liabilities that they are in a tight spot to function solvently. Besides, who knows there may be other reasons prevalent to cause further steep falls of BTC prices.
Also, it looks like we are in a Recessionary macro economic phase, so with less money to invest and prevalence of so much uncertainty , further falls in prices of crypto assets are inevitable.
Shrugs…
On the positive side, stay calm, these cycles are bound to happen, just like ups and downs of life. So coping with this practically is the right thing to do.
Thankyou for reading…