Bitcoin miners on the verge of 'giving up and turning off'

Dry profits and sell-offs are making it difficult for Bitcoin miners, similar to the late 2022 period after the FTX crash.

A report released by market research firm CryptoQuant on July 5 showed signs of Bitcoin miners "shutting down their mining machines" as the price of Bitcoin fell 13% from $68,791 per coin to $59,603.

This situation occurs when miners are forced to shut down part of their machinery to limit operating costs, as well as sell off some of their Bitcoin holdings to hold out until profits increase again.

One of the signs mentioned by CryptoQuant is that the hashrate (the computing power of the blockchain mining system) is down 7.5%, down to 576 EH per second, the lowest level since peaking on April 27.

An employee checks Bitminer's mining system in Italy in April 2018. Photo: Reuters

"The situation is similar to the December 2022 period, when the overall hashrate of the system dropped 7.7% after the collapse of the FTX cryptocurrency exchange. Such declines often occur before the market hits bottom," the report said.

By the end of 2022, Bitcoin's price was $15,500 per coin, before skyrocketing more than 300% over the next 15 months.

Since the fourth Bitcoin halving in late April, miner earnings have also plummeted, as shown by the ratio of profitability to losses. Bitcoin miners’ daily revenue has dropped 63% over the past two months, as the base reward has decreased and transaction fees have increased.

“Miners’ total daily revenue was $79 million in early March, but is now only $29 million. Transaction fees also account for just 3.2% of total daily revenue, the lowest since April 8,” the report said.

This forced Bitcoin miners to use their reserves to make a profit. The sell-off of Bitcoin reserves by miners, along with sales by whales and some governments, caused Bitcoin prices to plummet, reaching a four-month low of $53,499 on July 5.

Financial services firm Cantor Fitzgerald believes some of the world's largest Bitcoin mining companies will have to shut down if the price of each coin falls below $40,000.