As the sun dips below the transom, Bitcoin is taking a tumble, a surprising retread from the heady zenith of almost $72,000 it enjoyed in May. The cryptocurrency is staggering, down a significant 10% from its memorable all-time pinnacle. A discerning gaze at the daily chart suggests the disheartening possibility of additional losses in the offing.
Respected Bitcoin on-chain analyst Willy Woo posits an intriguing theory for this unexpected dip. Woo asserts that the Bitcoin network has embarked on a purging mission, targeting feeble miners and ruthlessly obligating them to terminate their operations. These fleeing miners flood the market with their abandoned Bitcoin holdings, potentially amounting to thousands or even tens of thousands of the coveted coin. Correspondingly, the excess supply is putting downward pressure on the currency’s value.
The law of supply and demand proves inexorable. An increase in available Bitcoin inevitably leads to a decrease in price, and this influx is forcing other, potentially stronger miners to go under. It’s a brutal, Darwinistic cycle, but it is a reality many miners face. The ‘Halving’ effect has taken a toll, with its consequences growing increasingly apparent as the days go by.
In Woo’s eyes, this miner capitulation is an unfortunate, but necessary, aspect of the Bitcoin universe. He suggests that forcing weak miners to liquidate their Bitcoin holdings only assists in fortifying the network’s resilience. He likens it to a cull, where it’s survival of the fittest. The network destroys the weakest links, thereby creating a stronger, more unified chain.
April 20 witnessed a seismic shift in the Bitcoin ecosystem. The network’s ‘Halving’ event saw miner rewards drop precipitously from 6.25 BTC to a mere 3.125 BTC. As these rewards form a critical component of their primary income, miners saw their revenue brutally sliced by 50%. Continuing operations became a challenge and competition with larger entities like Riot blockchain and Mara Digital became all the more cutthroat.
Although bitcoin slid further, interestingly the network’s hash rate – the measure of computing power – hit nearly record highs. Despite some miners taking leave, the network remains strong, exhibiting the high hash rate of 578 EH/s, down only slightly from the 721 EH/s reported on April 23.
Analyst Woo further emphasizes the need to rid the system of ‘degen open interest’ in futures bets. Exorbitant levels of leverage trading on platforms like Binance, OKX, and Bybit have led to an inflation in ‘paper Bitcoin’ or mere speculative bets.
Post the FTX’s calamitous crash in November 2022, speculative bets cratered, leading to a quick recovery in Bitcoin prices over the subsequent months. Woo maintains that the legacy cryptocurrencies can reclaim its old glory only if there is an expunction of overhanging ‘paper Bitcoin’.
The question that remains is whether the purging of weak miners and the excess ‘paper Bitcoin’ can rekindle Bitcoin’s former glory. As it continues to bleed slowly, today’s losses merely reaffirm those suffered on June 6.
Bitcoin’s survival now hinges on its ability to maintain the $66,000 safety net. On the off chance this level collapses, panic could take over, triggering a flash crash to $60,000 or even the dismal lows of $56,500 witnessed in May 2024. A dire consequence indeed, but perhaps necessary, in the unforgiving world of digital currencies.
