Bitcoin mining profitability has fallen to low levels. Is this a bullish signal for the price?

New data indicates that the value of the Bitcoin “miner price” index has fallen below the cost of electricity needed to mine a single Bitcoin. According to historical data, this does not happen often, and when it does, it is always followed by a rise in the price of Bitcoin. Will this scenario repeat itself this time as well?

What is the Bitcoin Miner Price Index?

Before analyzing this data, let us first understand the concept of this indicator.

The Miner Price Index is a metric used to evaluate the performance and profitability of Bitcoin miners. This index is based on the current Bitcoin price and mining costs, including electricity and equipment maintenance costs. This is an important indicator for understanding the financial situation of Bitcoin. miners and their ability to continue mining.

The Miners Price Index calculates the total income you contribute Bitcoin BTC currency One, including associated transaction fees. This is done by dividing the total transaction fees by the total amount of Bitcoin mined.

If mining costs (such as electricity prices or equipment costs) exceed revenues, some miners may stop mining if it is no longer profitable for them.

This could reduce the new supply of Bitcoin in the market, which could lead to higher prices. vice versa

Bitcoin miners obtain their income in two ways:

Block rewards: When a miner creates a new block, he is rewarded with a certain amount of Bitcoin. This reward diminishes over time approximately every four years in an event known as "Bisection“(Halving). Initially, the reward was 50 bitcoins per block, then it was reduced to 25, then 12.5, and currently it is 6.25 bitcoins per block.

Transaction fees: When people transact on the Bitcoin network, they can add fees to incentivize miners to include their transactions in the next block.

Over time, as block rewards decrease, transaction fees become a larger share of miners' revenue, as is the case now.

Or Miners' incomes decline Every time Bitcoin prices drop.

Miner price fell below the cost of electricity for the fifth time in Bitcoin history

to publish Charles Edwards, founder of Capriole Investments, shows a chart showing that the "miner price" of Bitcoin falls below the "cost of electricity", meaning that the income from mining a Bitcoin does not cover the electricity costs necessary for its extraction.

A drop in mining profitability may cause some miners to leave the market, which may result in a reduction in the computing power (Hash Rate) of the Bitcoin network.

History indicates that this decline has occurred 5 times in the past, and each time was followed by an increase... Bitcoin Price. Which means this scenario could repeat itself this time around as well.

In this regard, Charles said: “The five times the price of mining was lower than the cost of electricity to mine Bitcoin (the price increased, this time it's different).

Despite this optimism, it is important to emphasize that the signals from this measure are valid in the medium and long term and that its results appear gradually. Bitcoin mining companies will not decide to shut down operations just to record monthly losses, for example.

We should also remember that the market is controlled by several factors and we must take them all into account. The Miners Price Index is one of them.

Currently, the market is mainly focused on US interest rates, and their impact in the medium and short term is greater than all other factors. The proof is the significant rise in prices that occurred after the images of inflation data on Wednesday.