The Coronavirus inspired havoc which bled the the entire crypto market red mid-March saw Bitcoin’s hashrate take a terrifying drop, indicating miner capitulation and reduced network security — all foreshadowing upcoming pain at a particularly vulnerable time since the halving is right around the corner.
Bitcoin’s network defiantly surged back from it’s March 20th low of 85E in a consistent uptrend marked by 4 successive higher highs and 5 higher lows, posting a new local high of 118.21E (a level which has only been breached 5 times in it’s history) as it eyes the all time high of 133E.
A higher Bitcoin hashrate indicates miner confidence
With the halving about one month away, it’s going to cost twice as much to produce Bitcoin as it does today, and since miners are not in the business to speculate and for the most part immediately sell the Bitcoin they earn as rewards for contributing computing power to the network, the recent price drop incentivizes them more than ever to capitulate. However, this latest hashrate uptrend proves they have no intention of stopping.
Bitcoin Cash and Bitcoin SV miners may have started mining Bitcoin after their own halvings
Bitcoin Cash underwent it’s own halving on April 8th and Bitcoin SV saw a halving on April 10th. Since these halvings drastically reduce the block rewards, the miners likely used their equipment to mine Bitcoin, especially since the difficulty is especially low now due to the near 50% hashrate drop that took place mid March.
Does this mean the same fate will be true for Bitcoin? Will the hashrate plummet immediately after it’s own halving which will likely take place mid May? This would leave the network more vulnerable to 51% attacks and foreshadow more pain for Bitcoin hodlers and institutional investors alike.
Currently Bitcoin Cash’s own blockchain is extremely vulnerable to such an attack, and is receiving criticism from the community over it’s low hashrate, and thus compromised network security.
Unsurprisingly, we’re seeing a similar drop with the Bitcoin SV hashrate as well, leading to questions about the current state of the Craig Wright supported Bitcoin (technically Bitcoin Cash) hard fork.
As for what is to come in the handful of weeks up to Bitcoin’s next halving, the hashrate will likely climb, along with the price into the halving, but unless it climbs high enough, we will certainly see a drop in hashrate as miners with already razor thin margins capitulate due to the increased cost of mining Bitcoin.
How high must the price climb in order for the Bitcoin network to not see a massive miner capitulation?
The primary factor here is the price of electricity in the areas where miners are operating their equipment, which is one reason mining is so centralized in China. There are many reports of miners even stealing electricity, garnering them Bitcoin virtually for free. The magic number is currently around $6,000 as this is the average cost of mining a single Bitcoin in the most price friendly regions of China.
After the halving, this number doubles. It would cost around $12,000 to mine a single Bitcoin, and this seems like quite a steep hill for the price to climb in less than 40 days, but Bitcoin has made impressive moves like this many times in the past.
If we don’t see a rise in price of that nature in the next month or so, it only makes sense for miners en masse to pack up their equipment (or sell it off) and stop mining. This will lead to a difficulty drop over time, relaxed network security and likely a short term dramatic price drop.