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Breaking News: Dogecoin (DOGE) Soars 8%, But An Uptick In This Metric Suggests A Pullback
bitcoin blockchain miner btc

Miner Capitulation: Hash Rate is Dropping Faster Than Bitcoin Price

Tony Spilotro by Tony Spilotro
3 years ago
in Cryptocurrency news, Bitcoin
Reading Time: 3 mins read
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Bitcoin is a unique asset unlike anything else in the financial world. Much of its value is derived from its underlying blockchain protocol, powered by miners through a process called proof-of-work.

However, the first-ever cryptocurrency’s hash rate is dropping faster than its price, indicating that the miners powering Bitcoin have begun to shut down their operations and are potentially leaving the market. But what exactly does this mean for Bitcoin’s future?

Bitcoin Miners Are Abandoning Cryptocurrency Faster Than Price Can Drop

Bitcoin‘s hash rate is plummeting faster than its price, according to new data. And that’s quite the feat, given the fact that the leading cryptocurrency by market cap set a record for one of its largest daily drops in the asset’s young history.

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Last week, Bitcoin broke down from $7,500 to plummet to under $4,000 just mere hours later. And all this after the cryptocurrency was trading at over $10,000 just a couple weeks prior.

Related Reading | Economist: Government Overspending Amidst Crisis is Bullish for Bitcoin 

The complete shock to Bitcoin price has caused miners to panic, who are currently operating at a significant loss and far better off buying BTC outright on spot exchanges at recent prices than it would be to continue mining it.

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It’s caused miners to shut off their energy-consuming rigs at an alarming rate.

Due to the declining $BTC price, it is now unprofitable for many miners to continue their operations.

Since its peak on March 7th, the 7DMA of #Bitcoin's hashrate has fallen by ~16% – with hashing power disappearing even faster after the drop to $5k.https://t.co/5bnFHpTXfX pic.twitter.com/X9uw8hOCgD

— glassnode (@glassnode) March 18, 2020

According to data from Glassnode, the hash rate has fallen by over 16% since its peak on March 7th. The collapse in hash power coincides perfectly with the fall in price.

Mining demands an enormous amount of energy. The Bitcoin blockchain requires more energy to power than many small countries. It’s the cost associated with energy consumption that makes mining Bitcoin at such low prices unprofitable.

If Bitcoin price continues to trade as such lows, miners may further capitulate and sell off their BTC holdings to either fund operations, or to completely cash out and end the business venture.

Miners with the highest energy prices will be the first to go. But what does this all mean for Bitcoin and the network it relies on?

What Does Rapidly Dropping Hash Rate Signal For The Future of BTC?

Mining difficulty drops as miner competition declines, so the protocol will live on and continue just fine. In terms of any negative implications, the rush of smaller time miners shutting down their machines will let the biggest players only further dominate, causing more centralization in Bitcoin‘s network to take hold.

It’s any dominance gained over the Bitcoin hash rate that could become potentially dangerous in the future.

But things could soon be getting worse before they get better for miners.

Related Reading | Bitcoin Trades Below Production Cost, Miners Are Better Off Buying 

Bitcoin’s halving is in less than two months, causing the block reward miners received for validating each new block on the chain to be slashed in half from 12.5 BTC to 6.25 BTC. Not only does this cut the reward in half, but it also means that the cost to produce each Bitcoin doubles overnight.

With energy consumption staying flat per block, yet with less Bitcoin awarded, miners are likely to capitulate even further if prices can’t catch up with rising production costs and investor expectations.

Tags: bitcoinblockchainbtccryptominers
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Tony Spilotro

Tony Spilotro

I'm Tony Spilotro. Behind the pseudonym, I'm a global remote work leader with a decade of award-winning content experience and excellence. Here, I explore my newfound passions pertaining to privacy, finance, economics, politics, cryptography, property rights, and other libertarian-esque views. I am a Bitcoin evangelist, maximalist, and educator whenever I can be, helping to spread its message of freedom from government control, monetary policy mismanagement, and passing the buck - literally – to future generations. My journey from a curious retail crypto investor to a serious Bitcoin advocate, trader, and technical analyst is an unusual one, but life-changing nonetheless and has become less about money and more about a long-overdue revolution. While a firm believer in the laws governing math and science, I am profoundly fascinated by the impact of astrology and astronomy including moon and solar cycles and planetary alignment and their ability to influence and potentially predict markets. It hasn't yet clicked for me as to how to put anything to use, but I consider it my current rabbit hole I can't yet dig out of. My perspective of growing up alongside the internet, the dot com era, the Great Recession, and roots in video games collecting coins and rare items caused Bitcoin to immediately make sense to me. Through all of these lenses, I seek to produce content that is educational and entertaining, and I thank you sincerely for taking the time to read what I have to say. Please follow me on Twitter at @tonyspilotroBTC and feel free to drop me a line if you would like to work together.

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