With the price of Bitcoin (BTC -0.92%) falling and the price of energy increasing, Bitcoin miners have had a difficult time making money in 2022. With margins getting squeezed hard, some are now shutting down operations entirely in a process known as Bitcoin miner capitulation. The most obvious sign yet of Bitcoin miner capitulation is the filing of Chapter 11 bankruptcy by Core Scientific (CORZ) on Dec. 21.

There are two different schools of thought on what Bitcoin miner capitulation means for the future price of Bitcoin. There is both a bearish scenario and a bullish scenario.

The bearish scenario

The bearish case -- Bitcoin miners going out of business is bad for the price of Bitcoin -- is easy to make. Most obviously, any failure of Bitcoin mining contributes to the overall bearish sentiment in the market for Bitcoin. Wall Street investment banks will no longer recommend Bitcoin mining stocks as contrarian plays, and they will no longer recommend Bitcoin. Everything related to Bitcoin starts to look like a "sell."

Data center engineer in a crypto mining facility.

Image source: Getty Images.

Once Bitcoin miners start shutting down operations, the downward spiral really begins. We've seen this already, with a few bankruptcies (and near-bankruptcies) of companies in the Bitcoin mining sector. In September, for example, we saw the filing of Chapter 11 bankruptcy by Compute North, which provides data, hosting services, and infrastructure for Bitcoin mining companies. Immediately, investors began checking to see which Bitcoin miners had significant exposure to Compute North.

In a worst-case scenario, Bitcoin miners will actually start going out of business. And when they do this, they will need to liquidate everything, including their Bitcoin holdings. As might be imagined, this puts further selling pressure on the price of Bitcoin. That's why some traders are now predicting that Bitcoin might fall as low as $10,000 based simply on fears about Bitcoin miner capitulation.

The bullish scenario

The bullish case -- Bitcoin miners going out of business is good for the price of Bitcoin -- is harder to make and may require a leap of faith for new crypto investors. Historically, Bitcoin miner capitulation has been one of the best signs we are close to reaching a market bottom. In the 2018 Bitcoin cycle, for example, Bitcoin miner capitulation started when Bitcoin fell to $6,000 and continued all the way down to $3,000. Then a new Bitcoin rally began.

So, from this perspective, we might be getting ready for another Bitcoin rally. As Bitcoin rallies in price from a market bottom, Bitcoin mining will once again become profitable, and all the mining companies that managed to avoid going out of business in this cycle will be able to participate in the upside potential. Then, as Bitcoin miners become more profitable, Wall Street investment banks will begin to recommend them, and so the cycle begins anew. Of course, past performance is no guarantee of future performance, so be careful about relying too much on historical price data.

The bullish case for Bitcoin miner capitulation also includes factors that are unique to the crypto market, such as the overall Bitcoin hash rate, which is a measure of how much computing power is being used to mine Bitcoin at any point in time. When Core Scientific filed for bankruptcy, it specifically mentioned "the increase in the global Bitcoin network hash rate" as a key factor. The bullish case also includes analysis of the amount of Bitcoin currently held in the digital wallets of Bitcoin miners. According to analysts, miners are not dumping Bitcoin right now, which could be a positive sign for the price of Bitcoin.

Is Bitcoin a buy right now?

Bitcoin miner capitulation is an interesting starting point for thinking about what will happen to Bitcoin over the next 12 months. While there is certainly room for debate about what this one particular signal means for Bitcoin, I'm firmly in the camp that thinks Bitcoin miner capitulation is a positive sign for the future price of Bitcoin. I'm bullish both short term and long term on Bitcoin.

While the Core Scientific bankruptcy filing is certainly cause for concern, the company has specifically said that bankruptcy will not disrupt operations. It will not liquidate its Bitcoin holdings and will try to hold on for dear life for the arrival of the next Bitcoin rally. That pretty much sums up what many Bitcoin investors must be thinking right now.

Bad news might be good news when it comes to Bitcoin. If the Core Scientific bankruptcy is a sign of Bitcoin miner capitulation, then the market can finally hit a bottom. From there, the only way forward is up.