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Cryptocurrency analyst Astronomer, known on x by the username @astronomer_zero, has proposed a potentially compelling bottoming signal for bitcoin, which hinges on the electricity costs incurred by miners to produce btc. According to him, this particular metric has historically served as a reliable indicator for identifying optimal buying opportunities within bitcoin price cycles.
Has bitcoin bottomed?
He x.com/astronomer_zero/status/1831133767249113313″ target=”_blank” rel=”nofollow”>analysis The paper, titled “btc Miners’ Electricity Cost a 100% Accurate Bottom Signal,” leverages data to illustrate a scenario where bitcoin’s production cost falls below its market price, suggesting a pivotal moment for potential investors. The astronomer elaborated on his methodology and findings by referencing his previous predictions that successfully identified market tops — most notably a 30% drop from a peak of $70,000 — which was guided by similar data-driven signals.
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Astronomer’s current focus on the cost of mining is due to its significant implications on bitcoin supply dynamics. Despite halving events designed to reduce the reward for mining bitcoin, there is still an annual inflation of 0.84% in its supply, which equates to approximately $10 billion worth of bitcoin entering the market each year. This is equivalent to the total holdings of major corporate investors such as MicroStrategy, indicating a substantial influx of bitcoin from miners, who tend to gradually sell in order to sustain their operations.
However, current market conditions, as Astronomer describes, have reached a rare state where the market price of bitcoin has fallen below the weighted average cost of electricity needed to mine it. This situation typically prevents miners from selling their assets at a profit, potentially reducing selling pressure in the market.
“Not only does that mean that miners can’t sell their btc for a profit. It also means that it’s simply cheaper to just log into a CEX and buy 1 bitcoin, rather than go through the pain of mining 1 bitcoin. So, not only does this make miners (the people who control btc) not want to sell, but it also makes them want to buy, because it’s cheaper to just buy rather than mine them,” Astronomer suggests.
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This change not only affects miners’ selling behavior but also their buying strategies, contributing to a decrease in supply pressure and possibly triggering upward price movements. Astronomer supports his claim by pointing out that historically, when the cost of production fell below the market price, this consistently led to substantial price recoveries.
He detailed examples from the recent past, including notable drops in March 2023, when bitcoin hit $19,500, November 2022, $16,500, June 2022, $18,000, May 2020, $8,900, March 2020, $4,700, and November 2018, when it bottomed at $3,500. Each of these moments were followed by strong bull runs, underscoring the potential reliability of this signal.
“How many times? In 17 out of 17 cases, that meant the price was at levels that, according to history (with high statistical significance), you would want to buy, or lose and regret for a long time,” the analyst adds.
Currently, with bitcoin’s cost of production, according to Capriole Investment data, at $60,711 and the price hovering around $56,713, the conditions described by Astronomer are manifesting once again. This juxtaposition poses a critical question to the market: is now the time to buy?
While Astronomer's analysis is backed by historical data and close market observation, he remains cautiously optimistic about the results, as summed up in his final comment: “Will it be different this time? Maybe.”
At the time of writing, btc was trading at $56,804.
Featured image created with DALL.E, chart from TradingView.com
