Bitcoin (BTC) Miners Face Historic Lows in Profitability as BTC Price Drops 10% in 10 Days

Analysts are trying to pinpoint the reasons behind this disparity. Some, including crypto-trader DaaMDeFi, attribute it to concerns about a potential US recession.

Bitcoin (BTC) price experienced a significant drop over the past ten days, falling 10% from $64,190 to $57,800 as of September 3. In contrast, other major assets remained relatively stable. The S&P 500 index is just 2% below its all-time high, while gold is only $50 short of its peak.

Analysts are trying to pinpoint the reasons behind this disparity. Some, including crypto-trader DamiDeFi, attribute it to concerns about a potential US recession. However, recent market trends suggest a shift in focus toward monetary policy and the performance of the US dollar.

DamiDeFi argues that a more lenient Federal Reserve policy, possibly involving interest rate cuts, could notably influence Bitcoin’s future. This view aligns with market expectations for the Fed to take a more expansionary approach to supporting the US economy.

The bottom of #Bitcoin may be in

There's a new bullish narrative for Bitcoin driven by looser Federal Reserve policy and global macro trends. After a bearish phase in early August, expectations of the Fed easing monetary policy, such as lowering interest rates, have boosted… pic.twitter.com/PpE9dOOnwx

Evidence of this can be seen in the increased demand for US government debt. For instance, the 2-year Treasury yield fell to 3.88% on September 3rd, down from 4.06% two weeks earlier. This movement toward safer investments reflects investor anxiety, partly driven by the July jobs report, which showed a slowdown and an increase in unemployment to 4.3%.

The July Consumer Price Index (CPI) revealed a drop in inflation to 2.9%, the lowest level since March 2021. This improvement, however, faces potential setbacks due to the risk of rising unemployment claims, which might hinder expectations for a 0.75% interest rate cut by the end of the year.

The market currently forecasts a 74% probability that the Federal Open Market Committee (FOMC) will lower rates below 4.50% by December 18th. This outlook could face challenges if economic data fails to meet expectations. The upcoming jobs report scheduled for September 6th will be crucial in shaping the Federal Reserve’s decision. Morgan Stanley economists anticipate that 185,000 new jobs were added in August, likely influencing the Fed’s future actions.

Bitcoin ETF Withdrawals Impact

Moreover, investor sentiment has been dampened by ongoing outflows from spot Bitcoin ETFs. Between August 27th and 30th, these funds experienced a net withdrawal of $480 million, effectively canceling the previous two days’ inflows of $455 million.

Although such fluctuations may not signal a fundamental change in Bitcoin’s value, negative news can create unease among traders. This anxiety may lead them to speculate whether major investors anticipate further declines in Bitcoin’s price.

Additionally, Bitcoin miners are facing increasing challenges. Mining profitability is nearing historic lows, and miners currently hold a large reserve of over 1.8 million BTCs. This excess inventory raises concerns that miners might sell their holdings to cover costs or repay debts, which could lead to a drop in BTC’s price.

Compounding these issues is the recent decline in the hashrate index, which measures expected earnings from mining. According to Hashrateindex.com, this index has decreased from $48 per petahash per day to $42 per petahash per day over the past two months. This index is influenced by network difficulty, Bitcoin’s price, and transaction fees. If these factors align unfavorably, a substantial sell-off by miners could further heighten risks in the current economic climate.

Bitcoin is at a critical juncture. Its future will depend on how global economic trends, US monetary policy, and the dynamics within the mining sector interact. Time will reveal whether BTC can overcome these challenges and regain its upward trajectory.

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