The miner capitulation risk tool is a two part model, which seeks confluence between implied miner income stress (Puell Multiple), and observed hashrate decline (Difficulty Ribbon Compression). It highlights periods where there is an elevated risk of capitulation in the mining industry, which may lead to the release of additional BTC volume from distressed miner balance sheets.
The model is constructed as follows:
🟠The Puell Multiple (PM) tracks aggregate miner income in USD, relative to the 1-year average. Values below 1.0 indicate that miner incomes are lower than the yearly average, with values below 0.6 typically associated with periods of elevated financial stress.
🟣 The Difficulty Ribbon Compression (DRC) signals when hashrate is coming offline, causing protocol difficulty to fall in a statistically significant way. This is an explicit observation that mining rigs are being switched off due to income stress, and becoming unprofitable.
🟨 Elevated Miner Capitulation Risk zones highlight periods where both metrics are signalling meaningful lows, and generally correlate with extreme bear market lows, and an elevated risk of miner capitulation events. A threshold of PM + DRC < 0.65 is selected as the definition of elevated miner capitulation risk.
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This model was first presented by Glassnode in The Week On-chain Week 25, 2022 Newsletter