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Breaking News: Coinbase Confirms DOJ Investigation Following Major Security Incident

Bitcoin Mining Sell Pressure Waning, Supply Shock To Drive Massive Price Increase

Tony "The Bull" Severino
Tony "The Bull" Severino
5 years ago
3 mins read
bitcoin mining supply miner supply shock

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The recent price action in Bitcoin has been particularly devastating to miners who had to turn off their expensive to operate machines after the price of the cryptocurrency fell below the cost of production.

However, the rapid capitulation of the weakest miners in the market has in the past always led to sustained, steady, long-term growth in the value of Bitcoin, eventually peaking out at the top of each subsequent bull run. Is this latest round of miner capitulation the final shakeout before new all-time highs are set?

Weakest Miners Fold as Bitcoin Price Plummets Below Cost of Production

Earlier this month, as fears over the coronavirus and its impact on the economy spilled into markets, it caused a record-breaking collapse in Bitcoin price and the valuations of other cryptocurrencies.

Even the stock market and safe-haven assets like gold suffered amidst the destruction.

Related Reading | Bitcoin Trades Below Production Cost, Miners Are Better Off Buying 

The price of Bitcoin fell so low, miners who typically operate expensive, specialized equipment in order to most efficiently generate BTC, were better off buying the first-ever cryptocurrency on spot exchanges rather than continuing to mine Bitcoin at a value below the cost of production.

However, the cost of production is a factor that varies greatly among Bitcoin miners, due to a variety of external influences such as regional energy costs, size of the operation, etc.

As with anything in life, only the strongest survive and can weather the greatest of storms. The recent storm across the crypto market was enough to flush out all the remaining weak miners.

2) Today we witnessed one of the largest Difficulty reductions in Bitcoin history. In the past, extreme difficulty reductions signal favorable probabilities for long-term capital deployment. pic.twitter.com/zV1zsqSmPV

— Matt D'Souza, CPA (@mjdsouza2) March 26, 2020

The rapid increase in miners shutting down operations led to a sharp drop off of hash rate, which at one point was plummeting faster than Bitcoin’s price was.

Only the Strong Survive: Well-Prepared Miners Weather the Storm To New All-Time Highs

When hash rate plummets, Bitcoin’s mining difficult self-adjusts to bring the cost of production more in line with the actual value the asset is trading at. The cryptocurrency just experienced its second-largest decline in hash rate in the asset’s history, causing a massive, record-breaking adjustment to mining difficulty to compensate.

Data shows that in the past, following each of the largest difficulty adjustments in history, on average Bitcoin’s price grew by over 1,000% in the 12 months following, over 160% in the six months following, and over 125% in the following three months.

6) After shutting off, Bitcoin they were receiving is allocated to the more efficient, experienced miners with excellent margins who are positioned to accumulate a larger percentage of the newly minted Bitcoin rather than having to sell it – significantly reducing sell pressure

— Matt D'Souza, CPA (@mjdsouza2) March 26, 2020

The idea is based on the theory that as the weakest miners disappear from the market, the sell pressure they add to the supply and demand begins to wane, causing a supply shock and eventually, demand begins to take over, causing the asset’s value to spike.

The strongest miners remain, holding the Bitcoin they mine to later sell when Bitcoin’s value appreciates.

Related Reading | Miner Capitulation: Hash Rate is Dropping Faster Than Bitcoin Price

With the weakest miners now shaken out, and big miners still holding strong, is it finally time for demand to outweigh supply once again, and drive Bitcoin prices to a new all-time high?

Featured image from Shutterstock
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Tony "The Bull" Severino
Tony "The Bull" Severino

Tony "The Bull" Severino

Tony "The Bull" Severino, CMT, is a distinguished figure in the cryptocurrency analysis sector, renowned for his in-depth technical expertise and innovative approach to market trends. As the Head of Research at NewsBTC, Tony leads a team dedicated to providing cutting-edge insights and forecasts, helping both novice and experienced traders navigate the complexities of the crypto market.
A seasoned Chartered Market Technician, Tony's prowess in identifying and capitalizing on market patterns is unmatched. His academic and professional journey in market analysis has firmly established him as a leading authority in technical trading strategies. Tony’s approach is heavily influenced by the principles of Elliott Wave Theory, a method known for its rigorous assessment of investor psychology and price movements.

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Beyond his role at NewsBTC, Tony is the visionary founder of CoinChartist.io, an educational platform aimed at demystifying the nuances of cryptocurrency trading. CoinChartist.io serves as a valuable resource for traders seeking to enhance their technical analysis skills. The platform offers a range of learning tools and resources designed to empower traders with the knowledge to make informed trading decisions.

In addition to his educational initiatives, Tony is a prolific author and a dominant voice in the crypto community. He writes the CoinChartist VIP newsletter, a weekly dispatch that has become a staple among crypto enthusiasts, revered for its insightful analysis and actionable trading advice. This newsletter has consistently ranked as a best-seller on SubStack, boasting thousands of subscribers who rely on Tony’s expertise to guide their trading strategies.

Tony is also celebrated for his literary contributions to the field. He is the author of the highest-rated Crypto Trading Journal on Amazon.com, a testament to his ability to communicate complex trading concepts in an accessible manner. This journal is widely regarded as an essential tool for traders aiming to track their progress and refine their strategies.

Before his ascent in the financial analysis world, Tony honed his skills in journalism. His background in this field has endowed him with a unique ability to present intricate market dynamics in a clear and compelling manner, making his insights highly sought after by a broad audience that ranges from casual readers to professional traders.
His professional affiliations underscore his commitment to excellence and continuous learning. As a partner of Elliott Wave International and TradingView, Tony collaborates with other leading experts to enhance his knowledge and skills. His active membership in the CMT Association further aligns him with the highest standards of industry practices and ethics.

Tony’s nickname, "The Bull," aptly reflects his aggressive and optimistic outlook on the cryptocurrency markets. His forecasts often anticipate significant upturns, earning him a reputation for bullish predictions that have frequently led to lucrative outcomes for those who follow his advice.

In summary, Tony "The Bull" Severino, CMT, is more than just a technical analyst; he is a mentor, educator, and innovator whose influence in the cryptocurrency space continues to grow. His dedication to advancing the understanding of market forces and his commitment to providing high-quality, reliable analysis make him a pivotal figure in the world of cryptocurrency trading.

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Disclaimer: The information found on NewsBTC is for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.

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Reason to trust

Strict editorial policy that focuses on accuracy, relevance, and impartiality
Created by industry experts and meticulously reviewed
The highest standards in reporting and publishing
How Our News is Made

Strict editorial policy that focuses on accuracy, relevance, and impartiality

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