The U.S. inflation report released on Tuesday confirmed the anticipated slowing of the Federal Reserve’s (Fed) liquidity tightening, and the outlook for risk assets now appears positive.
However, despite improving macroeconomic conditions, VanEck, a major investment firm, predicts that Bitcoin (BTC) could remain under pressure as a number of miners are expected to fail.
In the 2023 prognosis, Matthew Sigel, head of digital assets research at VanEck, said that bitcoin will challenge $10,000 to $12,000 in Q1 amidst a wave of miner bankruptcies, which would be the low point of the crypto winter.
Bitcoin miners, or those who create coins, have been struggling with growing operational costs and declining bitcoin values this year.
Given that they earn bitcoin as compensation for resolving challenging mathematical puzzles to validate transactions on the blockchain, miners’ profitability is directly correlated with the price of the cryptocurrency. The incentives gained are frequently sold to pay for operating expenses.
Thus, when the price plummets, as it did this year by 61%, it triggers miner capitulation, in which weak miners leave the market and sell their reserves, which further drives down the price. In the worst-case situation, giving in can cause a death spiral.
To deal with the challenging market conditions, miners have begun depleting their stock of coins. The amount in miner wallets has decreased by over 25,000 BTC ($444 million) since July, according to data compiled by blockchain analytics company Glassnode, reaching a 14-month low of 1.818 million BTC.
Given that the majority of mining companies are losing money, the tendency might continue.
“With nearly all of its constituents burning cash and trading for far less than book value, the MVIS Global Digital Assets Mining Index’s median market cap is at under $180 million. Given the current rising electricity prices and lower Bitcoin prices, which make Bitcoin mining generally unprofitable, we anticipate many miners will restructure or consolidate “Sigel penned.
If the price drops below $12,000, it will represent an 82% decline from the record high of $69,000 set in November 2021. The preceding two bear markets peaked at about 85% of their respective record highs.
In the second half of 2023, according to Sigel, bitcoin will increase once more to $30,000.
Sigel stated that the beginning of a new bull market would be driven by lower inflation, easing energy concerns, a potential ceasefire in Ukraine, and a turnaround in M2 supply. He also predicted that an oil-exporting country would include cryptocurrency in its sovereign wealth fund.
