Bitcoin Miners Are Capitulating — Here's Why

[00:00:00]Right now, Bitcoin miners are earning 50% less than they were a year ago. And yet, their stock prices are exploding.

[00:00:07]That doesn't make any sense until you understand what's actually going on under the hood. So, in this video, I'm breaking down the AI exodus pulling miners away, the famous signals sitting in the deepest buy in years, and the true cost of production that could decide where the ultimate bottom is. So, let's get into it.

[00:00:26]In this video, we're going to take a proper deep dive into the current state of Bitcoin mining because there's a lot going on under the hood right now. And honestly, some of it's looking pretty rough. But as always, there's a flip side to the story. So stick with me till the end. Now, first up, we're going to talk about the hash rate because we're actually going through a genuine hash rate bare market right now. And for those of you that aren't aware, the hash rate is the total computing power that miners are throwing at Bitcoin every single second. It's essentially the raw horsepower securing the entire network.

[00:00:56]And the simple rule of thumb is that more hash rate means more security. And the more computing power that gets pointed at Bitcoin, the more expensive and impractical it becomes for anyone to attack the network or just try to rewrite its history because they would have to outmuscle the entire global fleet of miners all at once. And what we can see right now is that we've had one of the worst draw downs in hash rate on record going all the way back to November of last year. And the hash rate has now drawn down approximately 18% from its all-time highs with the maximum draw down coming in close to 20%. And for a metric that spends most of its life grinding up and to the right, that is genuinely a big deal. Because while for the most part hash rate does just go up into the right as more and more computing power gets thrown at the Bitcoin network, there are some notable exceptions where this hasn't been the case. The most obvious one is the China mining ban. And this was the big one where over half of the computing power securing the Bitcoin network left on mass practically overnight as miners were forced to unplug their machines and physically relocate them out of the country. And then you've got the 2018 bare market. And this one was purely price based. The main driver was simply the economics of it. The price crash pushed miners below their break even. So they all just unplugged and switched off. And a very similar story plays out at the Hing events here which you can see marked by the dash lines. A lot of the miners exit right around these points because overnight their cost to produce a single bitcoin becomes an incredible amount higher when the block reward gets cut in half. But here we can see that we've had a slightly different pattern this time around rather than one big short shock. It's been a long drawn out grinding process. But we can still tell a lot by just looking at the structure of the all-time high draw down profile because the biggest draw downs in the hash rate have almost lined up perfectly with the biggest sell-offs in price. And that's because there are two things happening exactly the same time.

[00:02:44]Not only is Bitcoin's price incredibly weak right now because we're in a bare market, but on top of that, the AI narrative is actively drawing miners away from Bitcoin altogether. And you can see this really clearly when we look at the mining stocks themselves here, I've plotted all of the top 12 Bitcoin mining stocks and then compared them against the Bitcoin price in white. Now, these mining stocks have all IPOed at different points in time, but accounting for that, we can see that actually only two out of the 12 have actually outperformed Bitcoin on a percentage basis since their inception. The other 10 have significantly underperformed, and it's not even close. So, it begs the obvious question, why would you ever own mining stocks when you could just own the real thing and actually still outperform? But here's the other side of the coin. When we switch this over to just the past year alone, the entire picture flips on its head. Over the last 12 months, 11 out of the 12 mining stocks have actually outperformed Bitcoin. And we're talking anywhere from plus 6% on MARA all the way up to a staggering plus 400% on Hut 8. And the reason for this is once again exactly the same story. They're pivoting to AI and the market absolutely likes it.

[00:03:53]They're moving away from Bitcoin, which for the long-term health of the network isn't actually a good thing at all. And we can see this most clearly of all when we look at the mining revenue on a daily basis. Because despite these miners posting such enormous increases in their stock prices, the actual mining revenue has gone down considerably. We've gone from about $52 million a day at the October price peak all the way down to around $26 million a day today, which means that miners have actually taken pretty much exactly a 50% haircut on their Bitcoin mining revenue. And yet, their share prices are still going up.

[00:04:27]So, just sit with that for a second. The market is no longer pricing these companies based on their Bitcoin mining businesses at all for the most part. And also, it doesn't look like this trend is slowing down either because that revenue is down about 11% in just the past month alone. So unless Bitcoin's price recovers from here, I think the story is going to be exactly the same for the very near future. And honestly, there's no better metric to measure all this mining revenue stress than the classic pure multiple. Now, if you're not familiar with it, the pure multiple is essentially the ratio of the daily issuance value that the miners receive relative to its own yearly moving average. But to put that in plain English, it measures how much miners are currently making from newly issued Bitcoin compared to what they were making on average over the past year.

[00:05:11]And this one's a classic. When it's high, miners are earning far more than usual and are heavily incentivized to sell into that strength. But when it's low, they're earning as far less than usual, and the cell pressure naturally dries up. And right here, I've actually got the pure multiple displayed a little differently to what you normally see.

[00:05:28]And this time, it's a percentile. So, what I've done is taken all the raw historical values of it and then rescaled them onto a simple 0 to 100% score, which just makes it easier to read at a glance. And what you can see here is that the pure multiple has and always has been one of the best overbought and oversold indicators in all of Bitcoin analysis. Anytime it's dropped into that buy zone, which is below 20%, it has represented some of the best generational buying opportunities that we've ever seen in this asset. And right now we are sitting in that box at about 17%. Which shows that from a miners's earnings perspective, we're very historically undervalued. And this is genuinely one of the most critical signals to keep your eyes on going forward. And if you want to see every chart that I use, including the ones that I'm using today, then go check them all out at onchainmind.io where I'm running a 7-day free trial for all new premium members.

[00:06:18]Now, another classic signal, and this one's extremely well known in this space, and it's known as the hash ribbons. So here, this uses two moving averages of the hash rate. You can see them here in the green and the yellow, which is the 30-day and the 60-day moving averages. And it tracks when those two lines cross over each other.

[00:06:35]And when the fast moving average crosses below the slow one, it prints one of these hash ribbon signals. And it's a really bearish signal because the hash rate is selling off. And it's telling you that miners are capitulating and switching off their rigs. Now, the signal is not actually when the hash ribbon starts printing, but actually when it stops printing, because when that happens, it means that the hash rate has stopped falling and it's catching back up again with the miners coming back online. And every time that's happened, it's presented some of the best entry signals in Bitcoin ever.

[00:07:04]But interestingly, what we can see right now is that we've just had the single biggest cluster of hash ribbon signals that we've ever seen, with three of them happening back to back, which is something we genuinely never seen before. And that just goes to show how ropey this current hash rate draw down really is. So personally, I'm not looking to aggressively enter the moment these hash ribbons cease to exist because as we can see from this chart recently, doing that would have only got us a tiny little pump before another leg straight back down. But if we start to see an extended period where the hash ribbons generally aren't printing anymore, then that is a really good sign that the network health is finally coming back again. Now, another major talking point is actually the cost of production of Bitcoin itself, which is the number that miners have to constantly account for day in day out.

[00:07:49]Now, there are many ways that you can calculate the cost of production of Bitcoin. And I'll be honest, there are some pretty sketchy versions of it out there. So, this is how I like to do it.

[00:07:57]I'm essentially looking at how much energy is needed to mine a single block on the Bitcoin blockchain using the efficiencies of the current 2026 ASIT miners for Bitcoin. And then we're going to look at the industrial electricity prices to convert that energy figure into the actual dollar cost of what it takes to find that block. And then because we know that the current block subsidy rewards miners with 3.125 bitcoin per block, we can then work backwards and figure out exactly how much individual bitcoin cost to get. And then just to be complete with it all, we can actually apply an overhead multiplier on top of that raw power cost. And this tries to capture all the other bits of the operation like the continuous capex costs on these machines and the cooling that's required and the staff and just the rest of the operating stack overall. Because whilst the power is by far the single largest item in Bitcoin mining, all of these other things that come with it must be factored in too if you want an honest number. And when we do all of that, we can find that the current estimated cost to mine a single Bitcoin comes out to roughly around $76,000 right now.

[00:08:59]Meaning that with a current spot price of 66,000 at the time of recording per Bitcoin, the average miner is currently operating at a 12.8% loss. Now, we know from history that unprofitable operators are eventually forced to sell their treasury reserves, so their stack Bitcoin, to simply fund the electricity cost and keep the lights on, which when you combine with rigs being ultimately shut down, results in even more hash rate dropping off the network. But, and this is what stops it all becoming a death spiral, Bitcoin actually has a built-in self-healing mechanism here. As miners switch off and the hash rate falls, the difficulty adjustment kicks in and ratchets the difficulty back down again, which in turn lowers the cost of production for every single miner that's left standing. So, the network naturally rebalances itself over time. And whilst all of this might sound like doom and gloom, we've actually seen many times before where Bitcoin's price has dropped well below its cost of production. And every single time that's happened, it's marked another amazing buying opportunity for anyone who's simply holding spot Bitcoin. Now, there's one final piece that I want to end with, and it really ties back to something we said earlier. We spoke about how miners are making about $26 million a day from Bitcoin mining, and that this number is actually made of two separate components. The first is the block reward, which is the actual freshly issued Bitcoin that gets rewarded to the miners, and then the other is fees. So, the transaction fees that all of us pay whenever we send a Bitcoin transaction.

[00:10:22]And what we can see is that throughout all of this, out of that entire $26 million per day that's being made by the miners right now, only less than 1% of it is actually coming from the transaction fees. To be specific, it's just 0.7% of the entire reward. And this chart here shows the average fees per block min. And basically the way I like to think about it is it's a measure of competition within the Bitcoin network for block space. And when there's a lot of transactions happening and everyone's competing to get into that next block, you get a lot of generation of fees. And as you can see, ever since the rally up to 100K, the amount of fee activity as a proportion of the block subsidy has really dropped off a cliff. And when we isolate just the total fees by themselves, we can see this even more clearly with the fees actually decreasing by 43% in just the last month alone. Now, to be clear, this is common for bare markets. Fees do drop off a cliff as the interest in Bitcoin waines.

[00:11:20]But it is getting to some pretty dangerous levels here where miners are increasingly forced to survive on just the block subsidy alone. And when you combine that with everything else, like miners already switching over to AI, it really doesn't look like this one's going to sort itself out on its own anyway anytime soon. So, look, I know this whole piece might sound like it's pretty doom and gloom, but let me put this all together because the whole takeaway of it is actually pretty simple. Clearly, some miners are pivoting away from Bitcoin, and the miners that are still left standing are only meaningfully less than they were just about a year ago. But the cure to all minor stress, exactly as it has been in every single previous cycle, has always been higher Bitcoin prices and time. And every single cycle, the old inefficient miners have got flushed out and have been forced to upgrade their own hardware just to compete with one another. And that's happened every single cycle without fail. And it's absolutely nothing unique to this one here. And I've said it many times before that mining is probably one of the most brutal businesses that you could ever get into. And right now, for the very first time ever, they've actually got another avenue to go down whilst the price is weak. And that avenue is AI.

[00:12:28]And that's a huge part of why we're seeing this extended hash rate bare market because there's now somewhere else for them to go. And they're not just stuck here with what they have. But don't get me wrong, despite all of these bearish metrics, the hash rate is still higher today than it was a year ago.

[00:12:43]Meaning that the network security is backed by more computing power than it was a year ago today. So although miners are earning less and that the economics for them aren't looking great at the moment, the Bitcoin network itself is still more secure than it was this time last year. And as we've seen across every single cycle, the cure for any minor related metric throughout its entire history has been time and the end of the bare market. And trust me, when higher prices come again and when this bare market finally flips back around and miners pile in on mass once more, you'll see every single one of these metrics absolutely spike back up, just like they have done previously. Because that's the thing about mining. It's brutal. It's cyclical and it always looks darkest right before it turns. The miners switching off today are the same ones who will be scrambling to plug back in tomorrow. And by the time the metrics confirm it, the easy entry is likely already gone. So anyway, I hope you'll find this useful today and as always, I'll catch you in the next one. [music]