In brief

  • Compared to previous bear markets, Bitcoin miners are faring much differently this time around.
  • Chapter 11 bankruptcies are completely different than abrupt shutdowns like those in China.
  • As for green shoots, one analyst is pointing to next year's halving event.

A cycle of miner capitulation can be observed throughout Bitcoin’s history.

When times are good, miners stockpile their Bitcoin, restricting the supply of new coins during high demand and serving as an additional multiplier to the general upward price trend.

When times are bad, like the past few months, miners sell their Bitcoin treasuries—usually to cover operating expenses when mining is less profitable, like when Bitcoin’s price is low, or to pay off over-leveraged positions.

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Back in June 2022, for example, a report by crypto analysts at Arcane Research revealed that during the month of May, publicly-traded Bitcoin miners like Marathon Digital and Riot Blockchain sold more Bitcoin than they mined—a stark reversal of fortunes from the first four months of the year when the same miners sold less than a third of their earnings.

This cycle’s been different, though, CoinShares Bitcoin research lead Christopher Bendiksen told Decrypt.

“When you had a much less efficient capital market it was probably a lot less orderly and we saw that manifested previously as these big pullbacks in difficulty,” he said, comparing the current network to when the industry was less established. “That just hasn’t happened this time, even though we’ve had spectacular bankruptcies and a bunch of operations struggling.”

During capitulation cycles, miners running inefficient or overleveraged operations drop off the network—usually, this has meant that they switch off their machines.

This can lead to those “big pullbacks" that Bendikson mentioned, when it briefly becomes easier for mining hardware to mine Bitcoin, before a rebalancing period during which more mining hardware gets deployed, lifting mining difficulty.

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This time, though, except for a brief period due to poor weather in the United States, firms haven’t been shutting off their machines.

This had made the latest capitulation cycle unique, shedding more light on how the mining market is quickly evolving.

Chapter 11 makes markets different

The recent bankruptcies haven’t had a significant effect on mining difficulty because, this time round, the majority of miners on the network were based in the U.S., said Bendiksen.

Before China’s 2021 crackdown on crypto, the bulk of the network’s hash rate (computing power) was located outside the U.S., predominantly in mid-sized, at least by today’s standards, private mining farms in China.

These farms dropped off the network when authorities cut their power, leading to a sudden 17% drop in the network’s hash rate.

This crackdown was far more unorderly for miners, with physical locations abruptly closing down, taking down a host of mining equipment with them.

That’s just not been the case for the more well-ordered bankruptcy proceedings.

“Either the shutdowns that have happened have been outgrown by new hash rate, more contracted machines coming on, or the machines haven’t been shut off,” the CoinShares researcher told Decrypt. “It looks completely different from other cycles.”

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Consider, for instance, Core Scientific. In December, the firm officially filed for bankruptcy, citing the ongoing market conditions.

Critically, though, the miner said that its operations would continue. The firm also penned several financing agreements to do that, further highlighting the differences between swift regulatory action and the slow-moving bankruptcy process.

All eyes on Bitcoin’s halving

Bitcoin prices are still 66% lower than their record set back in 2021 and there may very well be more financial difficulties down the road. According to Bendikson, the market may need to wait until next year for more green shoots.

In a research note, Bendiksen pointed to the 2024 halving event, which he said has historically been tied to bull markets. The Bitcoin halving is when the network cuts the amount of rewards that miners receive for their work in half.

“Historically, there has been a recurring tendency for the halvings to be closely followed by bull markets, leading to the now famed four-year bull/bear cycles in bitcoin price,” he wrote in a research note.

Data from Coinwarz puts that event at roughly April 26, 2024.

Regardless of price, if the industry has learned anything from this latest spiral, it’s that the mining industry has matured by leaps and bounds in the last few years.

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