Bitcoin Below $60k as Miner Capitulation Risk Looms Heavy
The end of the world as we know it? No.
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What’s up everybody. Today, I’ve got a straightforward analysis of bitcoin’s current price situation and where we’re headed if the tumult continues.
Bitcoin fell almost 9% today, and it’s now back down below $60,000 for the first time in two weeks. The timeline is overly bearish, as is usually the case on a near-10% intraday drop in bitcoin’s price, but it’s important to put this move in context. Bitcoin has been rangebound for entering 9 weeks, and this move is just a wick down to the bottom of the range. For now, we await and see if it bounces on this 4th retest or tries for the low $50,000 range, where the next support can be found:
This is the worst April in bitcoin’s history. This matters less for bitcoin than it would for stocks. Stocks have lots of seasonality due to quarterly earnings, so there’s more to glean from a comparatively bad month that was good in a year previously. Bitcoin’s cyclicality is less dependent on the four-quarter fiscal calendar and more in-line with the roughly four-year periods between halvings. A red monthly candle was inevitable given the (almost) seven green candles in a row. Still, a -16% month is nothing to scoff at:
Hashprice, miner revenue per unit of computing power per day, is at its lowest ever. It hit $46.55/PH/Day, which is down 74% from its post-halving peak. Miners had a brief reprieve following the halving as bitcoin’s price rose, but their profits are now being seriously crunched post-halving now that the spot BTC price is moving against them. There is light at the end of the tunnel according to mining derivatives—hashprice futures on Luxor are currently in contango, meaning futures price is above spot price, so traders expect an increase thanks to a rise in spot BTC in the coming months:
Miner capitulation risk is on the rise, with profits as squeezed as they are. If bitcoin’s price continues correcting downward over the next few days and it stretches into a weeks-long spell, big miners are at risk of having to liquidate a bunch of bitcoin on order to hedge themselves. Steve Barbour explains below:
If the price decline extends further than a few days or weeks, miners are at risk of having to shut their operations off entirely, cull underprofitable machines, and sell much larger chunks of bitcoin in order to keep the lights on. Hash Ribbons are our preferred indicator for when this happens. When the 30-day moving average of bitcoin’s hash rate crosses under the 60-day, it indicates miners are capitulating. Once the 30d MA crosses back above the 60d MA, shown when the ribbons switch from light red to dark red, capitulation is over and the price headwind of miner selling is no longer an issue. We’re approaching capitulation, as it looks like 30d is about to cross below the 60d:
Let’s further put this move in context by zooming much further out, as Adam Back suggested today (when he ratioed me). Bitcoin’s cyclicality is independent of stocks, of course, but this drawdown is insignificant for a different reason: it’s tiny compared to drawdowns during bitcoin’s previous bull runs. This drawdown is lower than % drawdowns we’ve experienced so far this cycle, and on par with drawdowns observed at the beginning of the last 4 bitcoin bull markets. Either this will be bitcoin’s smallest bull market yet and its second-shortest, or we have plenty of room to run. Zoom out, chill out, and put every move in context before feverishly smashing the sell button:
Bitcoin is growing more correlated with risk as it monetizes, not less. It is now truly a macro asset. The market traded like Powell is about to destroy everything tomorrow and take the pacifier out of the mouth of the crying toddler that is US asset markets. Bitcoin will unfortunately be caught up in such a scenario should the risk trade be fading. Given the size of both BTC and stocks’ % correction relative to their respective historical norms, there’s nothing to suggest this is anything more. All eyes on JPow.
Until next time,
Joe Consorti
River is our Bitcoin exchange of choice.
Securely buy Bitcoin with zero fees on recurring orders, have peace of mind thanks to their 1:1 full reserve multisig cold storage custody, and withdraw at any time. Need help? They have US-based phone support for all clients.
Now introducing River Link 🔗allowing you to send Bitcoin over a text message that can be claimed to any wallet. Give a gift, pay a friend for dinner, or orange pill your friends, completely hassle-free.
Use River.com/TBL to get up to $100 when you sign up and buy Bitcoin.
Nic and Joe, in the podcast this morning you asked for ideas on things to read. I suggest you listen to this podcast interview of Luke Gromen: https://www.grant-williams.com/podcast/0028-luke-gromen/. Essentially, he argues that:
-- China has arranged with major oil producing countries to purchase oil in yuan. Nobody wants to hold yuan, but these countries get rid of the yuan by buying products from China. Then, to the extent they have yuan left over, China settles the difference in physical gold. 20% of oil transactions in 2023 were in yuan. China has been buying gold to enable it to settle these transactions.
-- Demand for gold has also increased because countries around the world are buying it as an alternative to holding US Treasuries. This is because the US has weaponized the dollar against Russia; as you know, the US actually simply took billions of dollars in US banks that were Russia's. In addition, countries around the world see the US deficit continuing to balloon and they are concerned about the dollar continuing to lose value, and eventually about a dollar currency crisis.
-- In 2014, foreign central banks bought 55% of US Treasuries. Since then foreign banks, in aggregate, have bought no US Treasuries; indeed, the balance of Treasuries held by foreign central banks actually declined slightly over that period! As a result, since 2014 the Treasury had to find other buyers so the government changed regulations to require banks, money market funds, and pension funds to own Treasuries. Without these law changes, the demand for Treasuries would have cratered absent much higher interest rates to tempt purchasers. The US has now, as far as Luke Gromen can tell, run out of entities it can force to buy Treasuries.
-- Yet the US budget deficit continues apace at about 8% of GDP per year. Someone has to buy the Treasuries the Treasury issues to fund these government expenditures. The interest on the US' total debt now is so high that if the interest rate were to climb materially, the interest on the debt would exceed US tax receipts (which it almost does now). So the Fed can't let the interest rate climb substantially. This means that the Fed will buy any Treasuries needed to fund the government deficits.
-- The bottom line is that a US currency crisis started 10 years ago and is coming to a head within a few months to two or three years. In a currency crisis, we will have inflation of the dollar, climbing commodity prices, etc., and the dollar will tend to fall against other currencies, but especially against gold and bitcoin. Gromen is invested in gold and bitcoin and suggested that gold could be $2,500 by October and bitcoin $90,000. He wasn't making a prediction, he was just saying this would be consistent with his scenario, as an illustration.
I found Gromen's analysis really convincing. I bet you'll find it interesting too.
Nice analysis and interesting time for BTC...let's see if 50k holds..