Despite the strong bearish momentum experienced in the cryptocurrency market, led by Bitcoin, since reaching all-time highs earlier in the year, Bitcoin mining hash rate has increased since May 2018. The research carried out by Fundstrat, a Wall Street-based investment firm led by Tom Lee, indicated that the mining hash power of Bitcoin had doubled during the period.
Bitcoin Hash Rate Doubles Since May
Mining Bitcoin and other cryptocurrencies requires hash power which measures the difficulty of mining the coin. The difficulty of mining is a representation of how difficult it is to find a hash below a given target, changes based on the hash rate of the dominant cryptocurrency.
To simply state the consequences of difficulty in mining, more people mining Bitcoin increases the network’s hash rate hence increasing the difficulty of mining. The vice versa is also true as less people mining Bitcoin reduces the hash rate hence the difficulty of mining Bitcoin decreases.
Notwithstanding, miners calculate their profits using the hash rate which signals the revenue for these miners. Revenue from cryptocurrency mining is heavily affected by the volatility in this difficulty in mining as BTC’s block reward switches every year. High difficulty in BTC mining means miners will face difficulty in finding blocks to verify hence a decline in their revenue.
“Despite BTC bear market, hash power doubled since May to 57 EH/s – Even with upgrades to existing equipment, implies almost 1GW of new power consumption vs 5.2GW in May ’18. Breakeven now $7300 ($5300 cash BE) vs. $6000 in May,”
Sam Doctor at Fundstrat said.
Hash Rate Increases, Price Drops
Looking at a scenario where the reward of mining BTC remains the same over the course of four years yet the hash rate increases, difficulty in mining BTC will increase hence a lower number of coins will be available for these miners and mining centers. As much as the mining difficulty causes a decrease in revenue for the miners, the drop in prices of the cryptocurrencies heavily impact the revenue generated by these miners and mining centers.
Bitcoin has suffered huge losses since February, as it lost close to 80% of its value to date. As the price of BTC soared past $20,000 USD at the end of the year, a simultaneous increase was seen in the mining hash rate of Bitcoin. However, since May, when the prices of Bitcoin have had a strong bearish run, the mining the hash rate of Bitcoin has more than doubled.
The exponential increase in mining power shows the willingness of miners to continue to expand their holdings in mining Bitcoin even when the profits made during the bear market are lower than expected. A research by BitMEX showed that the world’s largest cryptocurrency firm, Bitmain has accepted the low profit margins from mining in a bit to increase overall market share and dominance.
By lowering their profits through increasing the hash rate, Bitmain will lockout competition from the market as the low sales cause financial difficulties to smaller firms. The strategy has discouraged many investors in taking the mining route instead opting to raise an initial public offering as a successful IPO may increase the firepower available to continue this strategy and eliminate an advantage rivals could have by doing their IPOs first.
As the mining hash rate of Bitcoin increases while the prices of the coin dropped, the blockchain protocol became stronger, more secure and more resilient to external attacks. Bitcoin enthusiasts feel the positivity of seeing the hash rate increase in a bear market as it shows that the miners are willing to take a cut in profits to continue operations of the blockchain.