- VanEck observed that the Bitcoin mining hashrate declined significantly in the first half of December.
- The firm’s analysts stated that the trend often indicates a bottom for BTC and a bullish reversal.
The Bitcoin mining hashrate dropped significantly mid-month. VanEck sees the trend as a positive sign for Bitcoin (BTC), signaling its potential rebound from its bearish trajectory.
A ‘Tough Structural Squeeze’ for Bitcoin Mining
According to the report jointly authored by VanEck’s Patrick Bush and Matthew Sigel, Bitcoin mining firms face a “tough structural squeeze.” Their mining hashrate decreased by 4% over the month through December 15.
However, historical trends indicate that miner capitulation often signals a bullish move for Bitcoin. They explained that hashrate compression over more extended periods has typically resulted in returns of “greater magnitude.”
Sentiment Over the Trend
VanEck said that the decline in hashrate could raise concerns about the health or performance of the Bitcoin mining industry. It could catalyze panic selling among investors, which would, in turn, worsen miner economics and further tank BTC prices.
On the other hand, empirical evidence suggests the opposite effect for long-term Bitcoin holders. The analysts recalled that since 2014, a 30-day decline in Bitcoin’s hashrate generally yielded 65% in the 90-day forward returns. This was more than the 54% returns when the hashrate rose.
Bush and Sigel also claimed that the pattern is evident even at a longer timeframe. The analysts highlighted that a 90-day slide in hashrate growth has generated 77% returns over the 180-day range. Its average gain is around 72%, compared with 61% returns when the hashrate is up over the same period.
Meanwhile, other analysts consider the “structural squeeze” as a reset button for the Bitcoin network. They opined that it would force inefficient miners out of the game. It would mean the mining difficulty would adjust downward, making it more profitable for the remaining, more efficient operators.
DATs Moving from Common Stock Sales to Preference Share Sales
Along the way, the VanEck analysts forecasted a significant shift in how digital asset treasury (DAT) companies will operate. They stated they will likely shift from common stock issuance to preference share sales to fund their BTC acquisitions.
The model would mirror Strategy’s (formerly MicroStrategy) playbook. The company, co-founded and chaired by Michael Saylor, notably uses STRD, STRK, STRC, and STRF preferred stocks to supplement its Bitcoin buying spree, in addition to issuing MSTR common shares.
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