What Happens When Miners Capitulate?

As profitability drops, miners naturally sell their Bitcoin holdings, capitulating as a response to worsening market sentiment.

If miners begin to sell off, it creates significant selling pressure in the market.

Large mining centers and companies are unlikely to capitulate due to a short-term price slump, as they hold long-term contracts with electricity providers.

Big mining companies are having a difficult timeThe break-even price of Bitcoin mining is estimated at around $4,100 to $4,500.

According to Miner Hut8, a publicly listed mining giant based in Canada, the firm has mined Bitcoin at a cost of $4,300 throughout the third quarter.

"Revenue of $26.7 million; Mining Profit Margin of 58%, and Adjusted EBITDA of $14.7 million. Mined 1,965 Bitcoin at a Cost per Bitcoin of US$4,363 inclusive of electricity costs, mining pool fees, and all other production costs."

Cryptocurrency researcher Ceteris Paribus noted that the cost of mining calculated by Miner Hut8 "Leaves out depreciation, expenses, and net finance expenses," which could place the actual cost of mining at $7,100.

The decline in Bitcoin's price and the increase in mining difficulty has had a negative effect on the mining profit margins of Hut8 as well as other major mining firms.

Still, the tough ecosystem developing before miners could take a toll on smaller firms, especially if BTC falls to the $6,000s, a price range that is below the break-even point for most producers.

Halving won't have an immediate effectOne of the most highly anticipated events of 2020 is the block reward halving of Bitcoin in May. The mechanism, which gets triggered once every four years, would effectively drop the compensation miners receive for mining blocks that contain BTC transactions by half.