Hey everyone, and welcome back to the On-Chain Mind Newsletter.

The Bitcoin price is maintaining all-time highs, yet the network feels eerily quiet. Transaction fees are at historic lows, the mempool remains uncongested, and retail frenzy is conspicuously absent. Something doesn’t quite add up. Beneath the surface, however, the Bitcoin mining ecosystem tells a far more complex story. In this article, I’ll dissect what’s really happening under the hood of the network, exploring why miners are under pressure even with Bitcoin nearing all-time highs, and what this disconnect between price and network activity might mean for the road ahead.

Let’s get into it.

Insights at a Glance:

• Miner Stress Amid High Prices: Despite Bitcoin’s all-time highs, some miners face capitulation due to rising network difficulty and compressed margins.

• Revenue Dynamics: Daily mining revenue is robust, but transaction fees are negligible, highlighting a shift to off-chain activity.

• Network Silence: Low on-chain activity suggests retail investors are yet to join the rally, hinting at potential for further price growth.

• Volatility and Adaptation: Increasing revenue volatility signals miners adapting to a rapidly improving price environment, not distress.

A Miner Capitulation Warning

Bitcoin’s mining ecosystem is a complex interplay of computational power, economics, and market sentiment. At the heart of this system is hashrate, the total computing power dedicated to securing the Bitcoin network by solving cryptographic puzzles to validate blocks. Measured in hashes per second, hashrate reflects miner participation and network security. A rising hashrate strengthens the network but intensifies competition, diluting individual miner earnings unless Bitcoin’s price or operational efficiencies rise to compensate.

Two key indicators—Miner Capitulation and the Miner Capitulation Risk Metric—provide critical insights into miner behaviour. The Miner Capitulation indicator is a classic BTC metric. It tracks the momentum between short- and long-term hashrate moving averages. When short-term averages dip below long-term ones, it suggests miners are powering down rigs, which is a sign of financial strain. The Miner Capitulation Risk Metric normalises this signal over time, producing a risk score from 0 to 100 that gauges the severity of stress relative to historical norms.

Currently, these indicators are flashing warnings. Despite Bitcoin’s price hovering near record highs, the mining sector is experiencing one of its deepest capitulation signals in years. This anomaly challenges the assumption that high prices equate to miner prosperity. To understand why, we must explore the economics driving this stress and whether it actually tells the whole story.

Price ≠ Profitability

The past year has seen an unprecedented surge in Bitcoin’s hashrate, driven by miners scaling up operations, often funded by debt or external capital, in anticipation of higher prices. However, this expansion has a downside: increased hashrate raises network difficulty, the metric that adjusts the computational challenge of mining to maintain a consistent block time (approximately 10 minutes). Higher difficulty means the fixed block reward (currently 3.125 BTC post the 2024 halving) is split among more miners, reducing per-machine earnings.

Consider the economics:

• Revenue per Terahash: The income generated per unit of computational power has plummeted as hashrate grows faster than price (see below chart).

• Fixed Costs: Many miners carry debt from expansion during the previous cycle. Interest payments persist regardless of price surges, squeezing margins.

• Operational Costs: Rising electricity prices, especially in regions like the U.S., and higher hosting and maintenance fees further erode profitability.

For miners who overextended during the last bull cycle, high Bitcoin prices offer little relief if revenues fail to cover fixed costs. This forces tough choices: liquidate Bitcoin holdings, shut down less efficient rigs, or restructure operations.

Here’s the critical point: price does not always equal profitability. High prices can coexist with miner distress when difficulty, costs, and competition outpace revenue growth. The current capitulation signal might reflect a sector under pressure, with smaller or less efficient miners struggling while larger, well-capitalised players with access to cheap energy and cutting-edge hardware thrive.

Daily Mining Revenue

Daily mining revenue currently stands at over $53 million, rivalling peak earnings from the previous cycle’s all-time highs. This figure is mainly driven by two components:

• Block Subsidy: The fixed reward of 3.125 BTC per block, halved roughly every 4 years.

• Transaction Fees: Variable fees paid by users to prioritise transaction confirmation.

The block subsidy, which introduces new Bitcoin into circulation, dominates miner income. However, the 2024 halving slashed this reward from 6.25 BTC to 3.125 BTC, causing daily revenue to plummet from $60 million to $27 million overnight. This event showcases the brutal economics of mining, where profitability can vanish abruptly.

Despite such shocks, miners have shown remarkable resilience. Innovations in energy sourcing, such as tapping stranded natural gas, hydroelectric power, or niche renewables, have helped offset rising costs. However, post-pandemic increases in electricity and operational expenses have compressed margins, particularly for miners using older, less efficient ASICs. The latest-generation ASICs offer significantly higher efficiency and create a market divide. This split highlights the Darwinian nature of Bitcoin mining, where efficiency and scale increasingly determine survival.

Miner Revenue Strength

To gauge the mining sector’s overall health, the Miner Revenue Strength Metric offers a high-level view. This metric incorporates a multiple of the number of new coins mined daily by Bitcoin’s current price, to help assess whether revenue strength is growing or declining. Currently, the metric sits at a neutral level, indicating average conditions for the typical miner. This is a stark contrast to the post-halving revenue collapse or the sharp price pullback a few months back, where strength cratered.

The neutral reading suggests stability rather than systemic distress. However, it also reveals the sector’s complexity. Relying on a single metric risks oversimplification. A holistic view, combining capitulation signals, revenue strength, and other indicators, will always provide a clearer picture of the sector’s health.

Revenue Volatility: A Sign of Strength or Stress?

The Miner Revenue Volatility Metric tracks the variability in daily mining revenue using standard deviation. High volatility signals erratic income, often correlating with major market stress events. Historical spikes include: