The stagnation of the cryptocurrency market has put Bitcoin'south (BTC) toll at run a risk of further decline, as information technology struggles to recover beyond cardinal resistance levels. A descending price increases the probability of the so-chosen "miner capitulation" occuring, which is said to have triggered the major BTC drop in December 2022.

Belatedly last year, the Bitcoin price fell to effectually $6,000 following three months of stability in a tight range between $6,000 and $6,500. The subsequent drop to the $3,000s happened within the bridge of merely one month.

Why miner capitulation occurs?

Miner capitulation occurs in the Bitcoin market when mining is no longer profitable. As profitability drops, miners naturally sell their Bitcoin holdings, capitulating as a response to worsening market place sentiment. If miners begin to sell off, it creates significant selling pressure in the market place. Such pressure creates a difficult surroundings for major cryptocurrencies like Bitcoin to maintain their momentum.

Big mining centers and companies are unlikely to capitulate due to a short-term price slump, as they agree long-term contracts with electricity providers. They also take more capital to bargain with instability in the market for an extended fourth dimension menses.

Meanwhile, brusk-term capitulation amidst smaller mining companies is likely. Major mining firms endmost down one after another could lead to a expiry spiral in which the Bitcoin network's hash charge per unit drops to near-zero.

Withal, every bit security and cryptocurrency researcher Andreas Antonpoulos previously said, a death screw or an abrupt drib in the hash rate of the Bitcoin network to near-zero is not likely to happen considering miners operate with long-term perspective and strategy. He explained, "Part of the reason that'due south unlikely to happen is that miners have a much more long-term perspective."

Hence, when short-term miner capitulation occurs — like to late 2022 — the market tends to recover in 6 months to a year. Currently, information technology is still premature to predict whether miner capitulation will occur heading into the yr's cease. However, if negative sentiment around the market is carried onto the first quarter of 2022, a December 2022-esque capitulation could occur in the upcoming months.

Bearish targets for Bitcoin

Prior to last week, when the Bitcoin price was clearly in an intense downtrend following a brief fasten to $x,600 on Oct. 26, many technical analysts predicted a further drop to the $v,000 to $6,000 region.

Crypto trader Eric Thies, for instance, said last calendar week that a fundamental bearish indicator lit upwards, noting that Bitcoin is due for a deep pullback in the near future. Subsequent to an awkward price activeness for over two weeks, during which Bitcoin demonstrated extreme volatility, Thies said that BTC could be setting up for a recovery afterward tweeting on Dec. 1 that the outlook was non dandy. The analyst emphasized that the current structure is "potentially significant for bulls," not dismissing the scenario of BTC rebounding strongly to higher resistance levels.

DonAlt, a cryptocurrency trader, said that while information technology is too early to country that Bitcoin is on rails for a full recovery, it would take to reclaim higher time frame levels to engage in any meaningful upside movement.

Higher fourth dimension frame resistance levels for Bitcoin sit between $seven,600 and $viii,500, and co-ordinate to DonAlt, BTC passing those levels in the short-term would indicate a bullish movement. He said, "Now that heads have cooled off, the bullishness has rapidly faded. Then far, this is a bearish retracement after a huge impulse down."

Big mining companies are having a difficult time

The break-even price of Bitcoin mining is estimated at around $four,100 to $4,500. According to Miner Hut8, a publicly listed mining giant based in Canada, the firm has mined Bitcoin at a price of $4,300 throughout the third quarter. The company stated:

"Revenue of $26.7 million; Mining Turn a profit Margin of 58%, and Adjusted EBITDA of $14.7 1000000. Mined 1,965 Bitcoin at a Price per Bitcoin of US$4,363 inclusive of electricity costs, mining pool fees, and all other production costs."

However, cryptocurrency researcher Ceteris Paribus noted that the toll of mining calculated by Miner Hut8 "leaves out depreciation, expenses, and net finance expenses," which could place the bodily price of mining at $seven,100. The researcher added:

"Short-term if the price goes under $7.1k they will continue mining as this is still > operational costs & mining equipment is a sunk cost. But long-term y'all can't imply that they are profitable <$5k. They will demand to replace equipment, continue paying employees, financing costs, etc."

The decline in Bitcoin's price and the increase in mining difficulty has had a negative effect on the mining profit margins of Hut8 besides every bit other major mining firms. Due to their large Bitcoin holdings and cash reserves, large mining facilities are not at imminent adventure of having to reduce their operations to cope with a declining Bitcoin price.

Still, the tough ecosystem developing before miners could have a price on smaller firms, specially if BTC falls to the $vi,000s, a price range that is below the interruption-even point for nearly producers.

Halving won't have an immediate event

One of the most highly anticipated events of 2022 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 one-half. It also decreases the charge per unit of new BTC production as the network approaches its stock-still supply of 21 million Bitcoins.

Since 2022, the halving has been talked about as the adjacent driving cistron of an extended Bitcoin rally. As a deficient nugget, any event that decreases the supply of the cryptocurrency would theoretically impact its cost tendency. Nonetheless, loftier profile investors have said that the halving is not likely to have whatsoever firsthand effect on the Bitcoin price.

Related: BTC Miners: No More Basement Rigs, Greater Profits to Come up

If the halving occurs without imposing a positive bear on on the price of Bitcoin, it would place additional pressure on miners to adopt better infrastructure and efficient equipment to try to further decrease the costs.

Throughout history, the halving has not led to a big rally for Bitcoin until a year or two after the event, perchance because information technology is priced in well earlier the outcome occurs. Every bit such, it is possible that the capitulation of small miners lead to BTC testing lower level supports in the $5,000 to $6,000 region despite existence downwards essentially since mid-2019, creating negative sentiment around the cryptocurrency market in early 2022.

The current price trend of Bitcoin

Based on fundamentals, Bitcoin remains potent in various key areas including user activity, transaction value denominated in dollars, and hash charge per unit. Official on-chain information from Blockchain.com shows that the number of unique addresses used has increased from 310,000 in January 2022 to nearly 500,000 in less than 12 months. The hash rate has also increased, from 41 exahash in January to 92 exahash, more than doubling in the same period.

Bitcoin network hash rate in tera hashes per second (trillions of hashes per second) source: blockchain.com

Bitcoin network hash rate. Source: blockchain.com

Due to the fundamentals, Bitcoin investor Timothy Petersen said that the "2019 bubble" of Bitcoin is likely to flare-up in about ii weeks, marking a potential local bottom by twelvemonth-end. Hence, if BTC begins to demonstrate an intense sell-off in the weeks to come up, the most probable cause of the drop would be capitulation by smaller mining firms. Mining capitulation is as well seen equally a positive point for medium to long-term recovery past many investors, equally it often marks the finish of a bear market and the beginning of an accumulation phase.