Much-Feared Bitcoin (BTC) Miner Capitulation Underway – Here’s Why Death Spiral Concerns Are Likely Overblown

A significant portion of Bitcoin (BTC) miners shut down their installations in response to the halving. The process, known as capitulation, occurs when miners can no longer make a profit by overcoming the electricity and maintenance costs required to power the network.

The crypto analytics company Glassnode confirms that the halving, which caused a 50% drop in mining rewards, also caused a 50% drop in the amount of processing power intended to power the network.

Fears of a massive capitulation of Bitcoin miners due to a strong loss of income have long been going on. The scenario could theoretically trigger a so-called “death spiral” that creeps transaction speeds, decreases trust in the network and ultimately lowers the price of the leading cryptocurrency.

Fortunately, when there are fewer machines competing to earn BTC, the network automatically adjusts how much processing power is required to confirm transactions. According to Glass node, the 6% difficulty adjustment that started on Wednesday is already having an impact.

‘[Bitcoin’s declining hash rate] slows down and returns gradually, as Bitcoin has just undergone a downward difficulty adjustment, once again making mining slightly more accessible to smaller players.

The effect of the halving on miners is also mitigated by an increase in fees, as miners favor transactions that offer higher fees to make up for the deficit. ”

Source: Glassnode / Twitter

Miners, however, are not yet out of the forest. They remain highly dependent on the price of Bitcoin. The next difficulty adjustment, which will take place in about two weeks, will also be crucial.

“… even as more income comes in through fees, it will take a greater degree of difficulty – or hopefully a higher price from BTC – to make Bitcoin mining profitable again for many of the smaller miners.”

Featured image: Shutterstock / Mark Agnor