Why Is The Bitcoin Hash Rate So High During This Downturn In Price?
Why is The BTC network hash rate still so High?
Firstly, an increase in the BTC hash rate means more mining power is being added to the Bitcoin network. Whenever new miners join the network, the mining difficulty increases. This is due to a mechanism implemented on the Bitcoin network which ensures 1 block is mined every 10 minutes. Essentially, if more miners come onto the network, then the difficulty of solving each block needs to increase to ensure it still takes 10 minutes to solve a block.
From a fundamental perspective, a rising hash rate is usually an indication of value as Bitcoin miners are willing to commit more computational power or equipment towards the mining process. This ultimately makes the Bitcoin network more secure which is one of the most important features of the Bitcoin Network. However, from a miner’s perspective, an increase in hash rate means more competition and therefore less revenue.
Despite a significant downturn in 2022 in Bitcoin’s price, which as of writing is $21.3k/USD, down 30% for the week and over 70% from its all-time high, the network’s hash rate continues growing and has set new record highs multiple times this year. In fact, the hash rate might be the only Bitcoin chart still going up in the current market phase.
So, why is the hash rate so high in such a spiralling downturn?
- As the hash rate has been increasing across 2022 to these all time highs, yes there has been a serious crash across the last 48 hours, but more often than not, individuals do not want to turn off miners and send to storage within such a short time frame of a crash, in case the market turns back around quick.
- There have been large corporations (particularly across the US), that are committed to large mining and energy rollouts, with deadlines and promises to be met, as well as meeting certain energy consumption targets, meaning they can’t just rescind miners and send them to storage after a few days of negative returns.
- It is important to remember that usually there is only one consistent flow of miners entering the market which comes from new miners being manufactured. However, in the current market we are in we are experiencing not only new miners entering the market, but also old miners which were switched off and relocated after China banned mining. We predict that the majority of these miners have now been relocated or disposed of.
- It is important to note that the new generation miners that are being produced have substantially higher hash rate than the old generation miners. New generation miners (although there are not many live on the network right now) can achieve results of up to 180-250 TH. This is almost double what the older generation miners are producing. Therefore, every miner being manufactured is adding twice as much hash rate.
- Finally, it is important to note that Bitcoin miners are long term investors. Bitcoin miners are not looking at what their daily returns are. Yes it is true that if you are paying more for power than you are receiving in Bitcoin then it makes more sense to just buy bitcoin on the live market. However, this is a manual process and most miners prefer to just leave their miners online and sell the Bitcoin in the future when the price of Bitcoin is substantially higher. It is also worth noting that the miners that do turn their miners off usually spend their power bills on buying Bitcoin. This pushes the price of Bitcoin up which ultimately makes mining more profitable again.
Will the hash rate continue to pile on even with Bitcoins price being so low?
In the long term, the Bitcoin network hash rate will always increase. However we do believe that there will be swarm of older generation miners starting to be taken off the network in the next couple of weeks. Old generation miners that are only producing 50-70 TH are still consuming the same amount of power as newer generation miners, and therefore they are at a substantial disadvantage. These older generation miners are currently running at a net loss and therefore we expect them to be shut down if Bitcoins price stays at these lows.
Of course, with the hash rate near record highs, the Bitcoin network is more secure than ever. In saying that, the hash rate may not always go up forever; and second, if it doesn’t, Bitcoin’s security will still be more than okay. We do believe the network hash rate is far to high for the current BTC price and we are expecting a correction as older generation miners will start being shut down. However, we do note that newer generation miners will also start being released on the market and therefore this might not result in as big of a correction as expected.