It’s been a month since the global market sell-off started due to the spreading coronavirus (Covid-19). Wall Street started rebounding after having its worst day since 1987 but fell again along with gold and pretty much every other market after the reports of President Donald Trump announcing national emergency.
The losses have been recorded in Bitcoin as well, which had its third-largest drop of nearly 40% though the price is still up 36% on a year-to-year basis. Bitcoin went down to $3,700 level but is currently trading around $5,200.
With the latest drop in bitcoin price, bitcoin miners are currently “unprofitable”.“Bitcoin Electricity Cost tested, this is the point where miners start to turn off rigs, b/c the electricity bill is more than 1BTC,” said analyst Charles Edwards.
However, these conditions don’t last long. It is expected that we would hold above $5,000 where strong support is present, though price can still go lower. If the situation continues on to halving, hash rate would drop.
“Some miners will drop out. The hashrate goes down. Difficulty adjusts, making it easier for new miners to enter the market. Bitcoin continues producing blocks uninterrupted,” explained analyst Mati Greenspan.”
Although, price is still following the stock-to-flow model and is falling due to the liquidity crisis as investors look to get cash by selling every asset, be it stock market, bitcoin, treasury or gold, however, things could get ugly if the price stays down come halving.
Scheduled for March 11, 2020, the third block reward halving is still 58 days away and with the macro view bleak, we can drop even further.
The halving occurs every 210,000 blocks that decrease the block reward from 12.5 bitcoin to 6.25 coins. This reduction in bitcoin supply if combined with the possibility of a recession will mean “big miner stress”.
“The Bitcoin Halvening event is already a stressful period for miners as their revenue stream effectively halves, causing low profitability miners to go out of business. Add a recession to the equation and tightening credit lines may put a lot more “zombie” Bitcoin miners out of business in a Credit Crunch type event,” said Edwards.
Currently, investors are looking to de-risk, which makes it hard to imagine that the event would attract new money. As we reported, things could be really ugly for overleveraged miners resulting in these miners making an exit from the market.
“Miners have been hoarding inventory, borrowing USD against BTC collateral. Many are over-exposed. The halving will slash their profitability. It could get nasty if the price is not high enough,” said Kruger.
However, the halving event is expected to still get a lot of attention, particularly in connection with the extensive amount of stimulus central banks are announcing to tackle the spreading coronavirus.