Fundstrat, a Wall Street-based investment firm led by Tom Lee, reported that the hashpower of Bitcoin has doubled since May.
“Despite BTC bear market, hashpower 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.
Exponential Increase in Mining Activity
Since February, the valuation of the cryptocurrency market has fallen by more than 80 percent. Yet, mining activity in the cryptocurrency sector has continued to increase at an exponential rate.
The difficulty of Bitcoin mining, which measures how difficult it is to find a hash below a given target, changes based on the hashrate of the dominant cryptocurrency. If less people are mining Bitcoin, then the difficulty of Bitcoin mining declines. But, when more people mine it and the hashrate of the network increases, the difficulty of Bitcoin mining increases.
When the difficulty is increased, it is harder to find blocks, which leads to a decline in revenue for miners. The block reward of Bitcoin changes once every four years and as such, the discrepancy of revenue from mining BTC is often caused by the volatility in the difficulty of Bitcoin mining.
If the reward remains the same for four years yet the difficulty increases, less BTC will be generated to cover the costs of miners and mining centers. That means, if the price of BTC decreases as well, then the revenue of miners decrease even further.
Hence, when the price of BTC falls, which leads to a decline in mining revenue, it is normal to expect the hashrate of Bitcoin to fall as well.
However, throughout the past five months, the hashrate of Bitcoin has more than doubled, despite its 70 percent drop in value within an eight-month period. That means, miners are still willing to expand their resources and mine Bitcoin with lower profit margins in a bear market.
Earlier this month, BitMEX Research revealed that Bitmain, the largest mining company in the cryptocurrency sector, has been maintaining its profit margin at a low level to solidify its dominance over the market.
The research paper read:
“These low prices are likely to be a deliberate strategy by Bitmain, to squeeze out their competition by causing them to experience lower sales and therefore financial difficulties. In our view, herein lies the key to one of the main driving forces behind the decision to IPO. A successful IPO may increase the firepower available to continue this strategy and eliminate an advantage rivals could have by doing their IPOs first.”
The increase in the difficulty and hashrate of Bitcoin is always a positive indicator, as it means that the Bitcoin blockchain network is stronger, more robust, and resilient to attacks. More to that, it also demonstrates the willingness of miners to continue their mining operations despite a clear drop in profit from the decline in the price of BTC.
Last modified: March 4, 2021 3:40 PM