What does Bitcoin Miner’s capitulation mean for the price of Bitcoin?

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With the price of Bitcoin (CRYPTO:BTC) falling and the price of energy rising, Bitcoin miners have struggled to make money in 2022. With increasingly tight margins, some now completely halt their operations in a process known as Bitcoin Mining. capitulation. The most obvious sign of Bitcoin miner capitulation to date is the Chapter 11 bankruptcy filing by Core Scientific (NASDAQ: CORZ) on December 21.

There are two different schools of thought on what the Bitcoin miners’ capitulation means for the future price of Bitcoin. There is both a bearish scenario and a bullish scenario.

The bearish scenario

The bearish case – Bitcoin miners going bankrupt is bad for the price of Bitcoin – is easy to make. Obviously, any bitcoin mining failure contributes to the general bearish sentiment in the bitcoin market. Wall Street investment banks will no longer recommend Bitcoin mining stocks as contrarian play, and they will no longer recommend Bitcoin. Everything about bitcoin is starting to look like a “sell”.

Image source: Getty Images.

Once Bitcoin miners start shutting down their operations, the downward spiral really begins. We have already seen this, with a few bankruptcies (and near-bankruptcies) of companies in the Bitcoin mining sector. In September, for example, we saw the Chapter 11 bankruptcy filing by Compute North, which provides data, hosting services, and infrastructure for Bitcoin mining companies. Immediately, investors started checking which Bitcoin miners had significant exposure to Compute North.

In the worst case, Bitcoin miners will actually start to shut down. And when they do, they will have to liquidate everything, including their Bitcoin holdings. As one can imagine, this puts additional selling pressure on the price of Bitcoin. This is why some traders are now predicting that Bitcoin could fall as low as $10,000 simply based on fears about Bitcoin miners capitulating.

The bullish scenario

The bullish case – Bitcoin miners going bankrupt is good for Bitcoin price – is harder to make and may require a leap of faith for new crypto investors. Historically, the Bitcoin miner capitulation has been one of the best signs that we are on the verge of a market bottom. In the 2018 Bitcoin cycle, for example, the Bitcoin miner capitulation started when Bitcoin fell to $6,000 and continued all the way up to $3,000. Then a new Bitcoin rally started.

So from that perspective, we could be preparing for another Bitcoin rally. As the price of Bitcoin recovers from a market low, Bitcoin mining will once again become profitable, and any mining companies that managed to avoid going bankrupt in this cycle will be able to participate in the upside potential. Then, as Bitcoin miners become more profitable, Wall Street investment banks will start recommending them, and so the cycle will begin again. Of course, past performance is no guarantee of future performance, so be careful not to rely too heavily on historical price data.

The bullish case for Bitcoin miners’ capitulation also includes factors unique to the crypto market, such as Bitcoin’s overall hash rate, which is a measure of the computing power used to mine Bitcoin at any time. When Core Scientific filed for bankruptcy, it specifically mentioned “the rising hash rate of the global Bitcoin network” as a key factor. The bull case also includes an analysis of the amount of Bitcoin currently held in the digital wallets of Bitcoin miners. According to analysts, miners are not dumping bitcoin at the moment, which could be a positive sign for the price of bitcoin.

Is Bitcoin a buy right now?

The capitulation of bitcoin miners is an interesting starting point to think about what will happen to bitcoin over the next 12 months. While there’s certainly room for debate on what this particular signal means for Bitcoin, I’m firmly on the side of believing that the Bitcoin miners’ capitulation is a positive sign for Bitcoin’s future price. I am a short-term and long-term bullish on Bitcoin.

While Core Scientific’s bankruptcy filing is certainly concerning, the company has specifically said bankruptcy will not disrupt operations. He will not liquidate his Bitcoin holdings and will try to hold his ground until the next Bitcoin rally arrives. That pretty much sums up what many Bitcoin investors must be thinking right now.

Bad news could be good news when it comes to Bitcoin. If Core Scientific’s bankruptcy is a sign of Bitcoin miners’ capitulation, then the market may finally be bottoming out. From there, the only way forward is upwards.

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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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