Just weeks ago, there were fears that miners had begun to capitulate. Bitcoin blocks were slower than normal, transaction fees skyrocketed, and data analysts observed large outflows from miner wallets.
What happened was the block reward halving, which decreased the revenue of miners by around 50%.
After the halving in mid-May, Matt D’Souza, a hedge fund manager and the chief executive officer of Blockware Mining, said that 30% of Bitcoin miners were at risk of “extreme capitulation.” As blocks slowed, this assertion was proved correct.
But after an automatic adjustment to the Bitcoin network difficulty, which determines how hard it is for blocks to be mined, miners are back in the game.
And that may show that there’s upside in the works for this embattled market.
Bitcoin Difficulty Plunges: Miners Are Back in the Game
Every 2016 blocks, which is normally around two weeks, there is an automatic adjustment to Bitcoin’s difficulty. The protocol tries to adjust the metric to ensure that blocks are mined approximately every 10 minutes, keeping network conditions “normal.”
On June 4th, the latest adjustment hit, resulting in a -9.29% difficulty adjustment — the seventh-largest move lower ever and the fourth negative adjustment since the start of the year.
Miners were quick to turn on machines, responding to the difficulty adjustment — effectively a short-term boost to their profitability.
Rafael Schultze-Kraft, CTO of blockchain analytics firm Glassnode, shared the chart below on June 6th.
It shows that in the past 24 hours as of his tweet, there were three separate hours in which 12 blocks — exactly double the status quo of six blocks per hour — were mined. This occurred due to an increased number of miners in the space and natural variance in block times.
“We’ve seen 12 blocks produced within a single hour three times today already. Yesterday 14 blocks were mined within a single hour,” he commented.
We’ve seen 12 blocks produced within a single hour three times today already.
— Rafael Schultze-Kraft (@n3ocortex) June 6, 2020
Analysts have perceived the recent influx of miners as bullish for the Bitcoin price.
Firstly, it shows that the fears of a “miner capitulation” are no longer as valid as they were earlier. This is pertinent to BTC because miners capitulating is believed to be what drove Bitcoin from the $6,000s to $3,150 in December 2018, alongside other macro drops in the crypto market’s price history.
And secondly, on-chain data shows that despite the increased number of blocks mined, miners continue to accumulate Bitcoin. In accumulating and not selling their coins, they are decreasing the amount of sell pressure that hits the underlying market.
Other On-Chain Signs Are Also Bullish
Other on-chain signals are also bullish.
Hans Hague, a senior quantitative analyst at crypto-asset fund Ikigai Asset Management, for instance, recently said that Bitcoin is in heavy accumulation as per on-chain metrics.
Featured Image from Shutterstock Price tags: xbtusd, btcusd, btcusdt After 10% Difficulty Drop, Bitcoin Miners Are Back in the Game