Has the price of Bitcoin hit bottom? Miner indicators reveal key signals in the market

Author: WOO X Research

Background

Bitcoin did not come into existence out of thin air; its production involves miners purchasing mining machines and providing computational power to solve mathematical problems. In return, miners receive Bitcoin as mining rewards. Therefore, it can be said that miners determine the supply of Bitcoin, and mining costs significantly impact Bitcoin prices.

WOO X Research will analyze from the miners' perspective using three indicators: the miner shutdown price, miner transfers to exchanges, and exchange balances, to assist in judging the current market Bitcoin price level.

Miner Shutdown Price: Nearing Cost, Close to Shutdown

When the Bitcoin price falls below the mining cost for miners, they will stop mining because, in this situation, the more they mine, the greater their losses. This price is also referred to as the shutdown price.

The main cost of mining is electricity, along with other expenses such as mining machines, facilities, and management. The current mainstream calculation primarily considers electricity costs, without adding other expenses, thus the shutdown price is somewhat overestimated compared to the actual situation.

The shutdown price represents the "lower limit" of the coin price and is often used to determine whether the coin price has hit bottom. This is due to psychological expectations; most people are unwilling to bear losses and find it hard to accept diminishing profits. Therefore, as the shutdown price approaches, miners' selling behavior will also slow down, leading secondary investors to adopt a "bargain hunting" mentality and purchase Bitcoin.

With electricity priced at $0.07 per kWh and a coin price of $56,000, among the current mainstream 25 mining machines, only 7 higher-end models are profitable, while the other 18 mining machines fall below the cost price. It is important to note that this chart does not include the other costs mentioned earlier. If we roughly estimate that other costs account for only 10% of electricity costs, then only 3 mining machines remain profitable in the market.

Therefore, from the perspective of the "shutdown price," it is highly likely that the current coin price has already hit bottom.

Miner Transfers to Exchanges: Slight Decrease, No Significant Change

The earnings miners obtain from mining must be transferred from the blockchain to exchanges for cashing out to maintain the operational costs of continuous mining. If the number of transfers increases, the potential selling pressure rises, indicating a bearish outlook on Bitcoin; conversely, if the number of transfers decreases, it suggests reduced potential selling pressure, indicating a bullish outlook on Bitcoin.

As observed in the chart below, since April of this year, the amount transferred out has significantly decreased, which can be speculated to be related to the Bitcoin halving on April 20 this year, resulting in reduced output and fewer transfers.

Recently, the amount transferred to exchanges has shown no significant changes, with only a decrease in transfers during non-trading days. From Monday to Friday, the daily transfer amount ranges between 7,500 to 10,000, while on holidays, it falls to about 2,500, down from approximately 3,500 to 4,500 previously.

Exchange Balances: Bullish, New Low in One and a Half Years

The balance of Bitcoin in exchange wallets is also an indicator for determining whether the price is at a bottom.

Centralized exchanges are the primary venues for trading in the cryptocurrency market. When the Bitcoin amount in exchanges increases, it usually indicates that funds are moving from the blockchain to prepare for selling into stablecoins or other assets, suggesting a bearish outlook on Bitcoin.

Conversely, a decrease in Bitcoin on exchanges indicates a transfer to blockchain wallets. Since the liquidity of on-chain exchanges is not as high as that of centralized exchanges, moving to the blockchain is typically not considered a selling action, resulting in lower expected selling pressure, indicating a bullish outlook on Bitcoin.

The chart below shows the changes in Bitcoin balances on centralized exchanges over the past three months, currently around 2.4 million, marking a new low in one and a half years. Notably, Binance has reduced its Bitcoin holdings by approximately 53,000 in the past 30 days.

Conclusion: Prices Are Nearing Costs, Exchange Balances at New Low, Bottom Approaching

Currently, the mining costs for miners are close to the shutdown price, and the number of transfers to exchanges is gradually decreasing, indicating that potential selling pressure is diminishing. Meanwhile, the Bitcoin balance on exchanges continues to hit new lows, further supporting bullish signals. Considering these data points, we can speculate that the current Bitcoin price may have reached a temporary bottom, and the market trend may gradually warm up in the future.