Bitcoin hash rate recently dropped to a 180 day low before correcting to the upside. With the correction Bitcoin price faced last week, it was evident that hash rate could suffer. Bitcoin price resides in dangerous territories as it's making it difficult for miners to stay afloat. As Bitcoin approaches its halving, it will be important for price to shift momentum.
Bitcoin Hash Rate
Bitcoin hash rate is studied by many analysts to gauge "network health." The hash rate tells us how strong the processing power is within the Bitcoin network. As hash rate grows, it reduces the risk of Bitcoin network attacks. Simply put, many understand that the Bitcoin network is structured around "miners." As the network grows, it can then facilitate more "hashes per second." Historically speaking, Bitcoin hash rate has seen exponential growth since inception. This comes without surprise if one just looks at the historical price action of Bitcoin ( which tends to correlate to hash rate growth ).
The Problem Right Now - Bitcoin Miners
The Bitcoin network runs very well when miners are staying afloat financially. Many tend to forget that miners have operating costs such as electricity and facilities. This is why the average miner needs to depend on Bitcoins price to assess profitability. If the miner is not profitable, they will most likely shut down operations until favorable environments surface. Most recently, miner profitability dropped drastically. If you take a look at the chart below, you will see that miner revenue fell to a 180 day low on 3/13/20. This was the same day that Bitcoin price opened up around $7,900 and closed at $4,970. Last week Bitcoin dropped -40% + which was a shock to the markets. This also put tremendous strain on miners.
Bitcoin Mining Profitability
A recent report by TradeBlock assessed Bitcoin mining profitability before and after the next Bitcoin halving which is scheduled for May of this year. During the next Bitcoin halving, the block reward for miners will be reduced from 12.5 BTC to 6.25 BTC per block. In doing so, the supply inflation of Bitcoin will drop from 3.72% to 1.79%. Bitcoin experiences a "halving" about every 4 years, and marks the most important part to its infrastructure. Bitcoins inflation rate dropping to 1.79% marks a milestone since it's the first time the inflation rate will be below the target inflation rate of 2% that banks enforce.
With miners receiving a -50% reduction in rewards during the next halving, it will put them under tremendous pressures. It will be crucial for Bitcoin price to at least get to break even points to mitigate the risk of miners backing off.
Bitcoin Mining Break Even Points
The report by TradeBlock last month assessed breakeven points pre and post Bitcoin halving. They took a look at the Bitmain s17, which is known to be a reliable and efficient mining device. The analysis took into consideration a Bitcoin hash rate that was 113,000,000 TH/s which is a bit above the current TH/s which sits right around 105,000,000. With that being said, it would be justified to say the estimations above might be slightly higher since costs go up as hash rate increases.
Projections Based On:
- Hash rate approaching 135,000,000 TH/s by Bitcoin Halving Date
- 30% miners using newer models such as s17 and 70% using older devices
|Pre-Halving ( Now )||113 EH/s||$6,851|
|Post-Halving ||135 EH/s||$15,062|
What This Means?
As discussed above, it will be crucial for Bitcoin price to change sentiment very quickly. At the time of this reporting, Bitcoin price sits at $5,300. Right now Bitcoin is trading -30% below its breakeven point pre-halving. If this study holds true, Bitcoin needs to rally +184% which would put it at its post-halving breakeven price of $15,062. Right now many would argue that miners could sustain the slight discount, but post-halving is a different story. Bitcoin price needs to rally heavily between now and May. It will be interesting to watch hash rate, as many miners could be jumping ship if BTC doesn't rebound in the near term.
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