Bitcoin's hash rate decline could trigger a wave of sell-offs

26 December 2022 81
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The bitcoin network's hash rate fell more than 38.8% from Wednesday's peak, as many U.S. miners were forced to shut down their capacity due to snowstorms. According to IntoTheBlock, the bitcoin hash rate, the level of processing power used to mine and process transactions, was 155.28 exahashes per second on Saturday, down from 253.88 exahashes on Wednesday.

 

Actually, the bitcoin price did not react to this hash rate drawdown in any way. The drop is temporary, for sure. However, the lack of bitcoin's reaction looks suspicious.

 

The dependance between hash rate and bitcoin price is presented in the following sentence. As the hash rate decreases, the difficulty of mining one bitcoin decreases, which means that a miner gets more bitcoins per unit of time. Since the miner gets more bitcoins, the cost of mining goes down for this particular miner. Lower costs can negatively affect the bitcoin price.

 

On December 21, one of the largest mining companies, Core Scientific, filed for Chapter 11 bankruptcy. The reason is not all creditors supported the company's rescue plan. The company itself has no plans to part with its equipment and will continue mining bitcoins in full. From the time of the bankruptcy filing, the company has 120 days to submit a plan to resolve its debt problems, after which it is given an additional 180 days to agree on it with all parties involved. If there is no agreement, then the company may be liquidated.

 

Earlier, analyst B.Raily estimated that bitcoin's return to $24,500 would provide the miner with $275 million in quarterly revenue, which would be enough to service debt and cover all operating expenses.

 

It is quite possible that the company wants to stall for time in the hope of bitcoin growth, waiting for the problem to solve itself. However, as everyone sees the "pain level" of the company, many participants begin to press on it. After all, bankruptcy can cause a wave of panic in the crypto market, causing interested market participants to buy the cryptocurrency "at rock bottom." Therefore, this is also a negative signal for bitcoin, however, it is on the medium-term horizon.

 

According to the technical analysis, bitcoin is trading in a narrow sidewall. The downside target can be set at the last days’ low of $16,550. Stop-loss is set at the exit from the sidewall at the circular level of $17,000.

 

Decline in BTC/USD:

Take profit – $16,550

Stop-loss – $17,000

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