Since the Bitcoin hashrate’s local bottom of 85E on March 20th, we’ve seen a consistent uptrend (higher highs and higher lows) in the key metric, keeping average transaction values low, and indicating the state of the network is strong.
Not only is the hashrate an important measure of miner confidence, but it’s truly the backbone of the entire ecosystem as without the security and ease of network use a high hashrate provides, it becomes difficult to transfer Bitcoin or protect from various attacks, most notably the 51% attack.
Average transaction fee gives a unique look at Bitcoin ecosystem
Average transaction fees are a favorite topic of many analysts used to determine the health of the Bitcoin ecosystem, and today is the first time where we are seeing a near complete recovery of this key metric since the carnage wreaked by the Coronavirus between March 12th and 13th which saw the price drop 58% at it’s worst point.
Bitcoin price alone is a great way to judge investor confidence, but the average transaction fee merges miner confidence with with actual Bitcoin users activity. One red flag to look out for, as a Bitcoin investor, is average transaction fees getting too high as this indicates a lack of hashrate to support real transaction activity on the Bitcoin network.
On Dec 23th, 2017 we saw the average transaction value top at $52, which indicated that there simply was not enough mining activity to support such massive network use. What transpired after this was a downtrend lasting over two years.
Most miners are operating at a loss, yet hashrate continues to rise
Due to the recent price drop, many miners are operating in the red, producing Bitcoin at a loss because the electricity used to mine it costs more than the Bitcoin rewards they are receiving. Why then, especially with the halving just around the corner, wouldn’t they just capitulate and call it a day? It seems to not make much sense financially, and theoretically invalidates of one of Satoshi’s most prophetic quotes
The price of any commodity tends to gravitate toward the production cost. If the price is below cost, then production slows down. If the price is above cost, profit can be made by generating and selling moreSatoshi Nakamoto
In spite of this, the hashrate is higher than when the Bitcoin price steadily rose over $10K and it’s showing no signs of stopping.
Sure, there have been reports of miners stealing electricity to essentially mine for free in China, and even nuclear scientists doing the same in Ukraine. Excess energy is being used to mine Bitcoin in New York, and I’m sure there are countless more situations like this where the miners aren’t paying fair value for the electricity they are using to mine, which is helping the hashrate move higher and lining shrews miners pockets.
There has to be more to this story, however. Diving a little deeper we can see that ‘virgin’ or, freshly minted, Bitcoin is fetching high premiums due to it’s nonexistent transaction history, so this could possibly net the miners a few extra bucks when they do go to sell their rewarded Bitcoin, and explain how some miners are stayin’ alive, albeit with razor-thin margins
While the jury is still out on exactly why the hashrate, and thus miner confidence, is so high in spite of Bitcoin’s recent price drop, one this is for sure – the network is showing a level of resilience that should be applauded by Bitcoin bulls everywhere.