On-chain data shows that Bitcoin miners are offloading their holdings, with miners sending a significant amount of coins to exchanges. This trend could be due to reduced earnings from a cooldown in Ordinals activity and the mining difficulty and hash rate reaching an all-time high. Glassnode, an on-chain analytics firm, reported that Bitcoin miners’ inflows to exchanges spiked to a three-year high on June 3, reaching levels last seen during the bull market of early 2021. Additionally, Coin Metrics data shows a decline in the one-hop supply metric of miners, which measures the quantity of Bitcoin stored in addresses that receive coins from mining pools. The miners had been accumulating Bitcoin since May 2021, but they reversed this trend in the second week of June.

Mining Difficulty Reaches All-Time High

Bitcoin mining difficulty reached an all-time high at the beginning of June. The difficulty measures how difficult it is to find a new block in the Bitcoin blockchain network. When the network’s computation capacity increases, it readjusts to make mining more difficult and vice versa. The difficulty is adjusted every 2,016 blocks, roughly every two weeks, based on the total computational power or hash rate of the network. The last adjustment occurred on May 31, with a 3.39% increase in total difficulty, which reduced miners’ earnings, eating into their profitability and possibly increasing their losses. Moreover, the competition among miners has increased since the last difficulty adjustment, with the network’s hash rate rising to a new all-time high of 381 exahashes per second on June 11. The next difficulty adjustment due this week will likely add to the selling pressure.

Summer Heat Could Impact Mining

The start of summer in June, with hot temperatures in the Northern Hemisphere, put a significant load on some mining farms due to the increased cost of electricity. In 2022, summer heatwaves caused miners in Texas to temporarily shut down operations, reportedly accounting for around 15% of the mining capacity in the United States. The heat waves could worsen in 2023, leading to a downturn in the network’s mining hash rate. Currently, the cost of producing Bitcoin for the existing mining hardware lies between $35,532 and $21,244. With Bitcoin’s price holding above $25,000, the downtrend in Bitcoin’s mining hash rate could be limited. However, if the situation worsens over the summer and the mining cost increases without a proportionate increase in the BTC price, the industry could fall back into capitulation mode, marked by accelerated BTC selling and a reduced network hash rate.

In addition, while Bitcoin’s hash rate has continued to rise, Bitcoin’s hash price metric, the market value assigned per unit of hashing power, declined significantly in May, suggesting a cooldown in demand for mining hardware. Hashrate Index reported that the “hashprice [PH] is back below $70.00/PH/day for the first time since mid-March,” after touching an average of $82.23 per PH per day in May, a 14.8% decline. It remains to be seen how far the sell-off extends and whether or not Bitcoin Ordinals activity comes back in the meantime.

Analysis

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