Bitcoin has made a good start of a new quarter as Bitcoin price manages to push above $7,000 resistance at two instances. Currently, we are trading at $7,120, up 4.77%. Just like the price, the network is giving off recovery signals. After falling to 85 Th/s last month in line with the price crash, the hash rate is back above 110 Th/s.
According to on-chain analyst, Willy Woo, this drop saw some miner capitulation and he isn’t expecting any more selling pressure from miners. “Hash Ribbons recovering (assumes no lower low), a reliable bottom signal, probably some miner capitulation during the crash,” said Woo. “They last got culled in Dec 2018, only the strong remain, I don't expect miners to add more sell pressure from here.”
Another indicator that is giving off bullish signals is the Miners Energy Ratio, the ratio between the market cap of bitcoin and its energy consumption is a buy zone. “Profit margin for minting new coins are at historic lows, a good sign for bottoms,” Woo said.
Commentator Preston Pysh is also feeling bullish as he noted, “Some serious hashing has been coming online in the past 7 days.”
Overleveraged miners taking a hit
Last month, the hash rate fell 45% which indicated that the resources committed to the bitcoin network were taken off as the market price of bitcoin fell below the cost of mining one BTC.
The selling pressure from overleveraged miners remains a big threat as Bitfinex bitcoin whale Joe007 pointed out previously. “Overleveraged miners still overleveraged and doubly f*cked by coming halving,” he said.
Mining operator Hut 8 is one such overleveraged miner that has more than 50% of their remaining BTC used as collateral for a loan from Genesis. They are paying 9..85% per annum interest rate on an 85% collateralized loan, as of December 2019.
But with the BTC price crashing, their collateral dropped below the required 85% after being margin called. After losing almost their entire reserve balance, now to bring it back to this level, they would have to add more BTC. As such after the recent sell-off, they shut down some of their operations.
In 2018 Hut8 mined 5,592 BTC at a rate of $8,841 CAD per bitcoin compared to 8,618 BTC at a rate of $9,514 CAD per bitcoin in 2019. This resulted in their profit margin decreasing from 50% to 45%. Also, as total network hashrate outpaced the growth of Hut8’s own hash rate and their cost to mine increased by ~ 18.5%, operating b/e at $4k usd/btc, pointed out analyst Ceteris Paribus.
The Floor Price
Meanwhile, Bitcoin hash rate is back to rising as it approaches reward halving next month. The event that occurs every four years will cut down the miners’ flow from 1800 BTC per day to 900 BTC per day.
However, according to Woo, we are “over-estimating” the impact of supply shock also termed as “quantitative hardening” in this cycle. Historically, the mining cost per bitcoin via its interactions with sell pressure resulted in its floor price and the floor post-halving this time is around $7,000-$8,000, Woo said.
Bitcoin price is already starting to go up, “weathering the biggest crisis we've seen perhaps since the Great Depression… the first big test of its safe haven properties.”