FX.co ★ Bitcoin: Disappointing "Uptober" and risks from stressed miners

The current October turned out to be the least volatile "Uptober'' ever. Nevertheless, analysts predict "wild" price volatility for the main cryptocurrency in November.

Bitcoin started the last week of Uptober in a stable average mood and ultra-low volatility. Could this mean that a major trend change is about to occur?

This week will be important from a macroeconomic point of view, as the personal consumer spending index (PCE) for September will be published in the US.

A week later, the US Federal Reserve will meet to decide on the interest rate hike based on specific inputs, including PCE and the consumer price index. Now the market is expecting another 75 basis points upward trend.

What happened to Uptober?

October is coming to an end. However, it remains very sluggish compared to October 2021. Some analysts are hoping for a sharp reversal in November.

It is worth noting that the bitcoin community is divided on whether the price of the token will rise or fall next year.

Most analysts and technical indicators suggest that it could drop to $12,000-16,000 in the coming months. This correlates with a volatile macro environment, stock prices, inflation, federal data and, at least according to Elon Musk, a possible recession that could last until 2024.

Miners add stress to BTC bear market

The proportion of bitcoin controlled by state-owned mining companies could rise to 40% by mid-2023, according to a new Hashrate Index report. But it could add stress to an already bearish BTC market.

The hash rate of public bitcoin miners jumped 295% in a year. The forecast came after evaluating the hashrate performance of Core Scientific, Marathon Digital Holdings, Riot Blockchain and other public miners over the past 12 months.

Notably, these firms increased their hash power from 15 exahashes per second a year ago to 58 EH/s in October 2022 – a 295% increase. In comparison, the hash rate of private miners increased from 134 EH/s to 177 EH/s over the same period, a 58% increase.

"The driving force behind the rapid increase in the capacity of government miners is that they were able to access cheap capital during the 2021 bull market," explained Jaran Mellerud, bitcoin mining analyst and author of the hashrate index report.

He added that government miners used the money to buy massive mining rigs. As a result, these firms have tens of thousands of units waiting to be connected and waiting for additional units to be delivered.

Core Scientific, the largest public bitcoin miner, has a 5% share of the total hashrate. Marathon and Riot control over 2% of the bitcoin hashrate each. There are seven public bitcoin miners with over 1% hashrate share.

As such, the bitcoin hash rate generated by public miners can continue to grow substantially as more and more new machines join the network.

On the other hand, private miners could not access the capital to buy mining rigs. Thus, the growth of their contribution to the hash rate may remain slower.

Miner stress may raise bitcoin sell-off risks

In 2022, bitcoin miners as a whole have been hit by declining prices for the main cryptocurrency, rising energy prices, regulation and growing competition.

State-owned companies rushed to raise capital by issuing additional shares or taking on additional debt, causing their share prices to drop significantly.

For example, the Valkyrie Bitcoin Miners ETF, which tracks several large public miners, has fallen 75% since its launch in February.

Another unpopular alternative to raising capital is selling bitcoins at lower prices. For example, according to an August update, Core Scientific has dumped 85% of its bitcoin holdings since the end of March.

In the same period, the price of BTC dropped by 60% to around $19,500 per coin. In other words, the rising hash rate may increase the need for miners to sell bitcoin for cash in order to sustain their operations.

"This is an absolute bloodbath. Bitcoin miners are in a tough spot right now and the likely result will be a wave of failures in the coming months as hashrate continues to rise, price remains flat and energy prices continue to rise," wrote Marty Bent, founder of Bitcoin media company TFTC.

Meanwhile, analysts are predicting that many state-owned miners will not be able to handle the drop in cash flows, leading to bankruptcy. As a result, their mining rigs can be auctioned off to private miners.

Conversely, the decisions of public miners to increase their mining capacity could pay off if the price of bitcoin reverses.