Hash Rate is Collapsing Faster Than Bitcoin’s Price

Suzat

March 26, 2020 4:45 pm

Hash rate is collapsing faster than Bitcoin’s price
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The Bitcoin (BTC) network hash rate has just taken a steep fall and is now below almost 45% from its 2020 peak.

On March 1, The network’s hash rate dropped from 136.2 quintillion hashes per second (EH/s) to 7.5.7 EH/s today, March 26, according to data from Blockchain.com. 

Coin.dance, another analytics site for the coin’s blockchain reveals a similar pattern, if less severe. On March 5, it reported a 2020 peak of roughly 150 EH/s, today under 29% decrease -105.6 EH/s.



Bitcoin network hash rate, April 19, 2019–March 27, 2020, Source: blockchain.com

Hash rate of a cryptocurrency and Difficulty                

The hash rate of a cryptocurrency is a parameter that gives the measure of the number of calculations that a given network can perform each second. A higher hash rate means greater competition between miners to validate new blocks; it also increases the number of resources required for performing a 51% attack, creating a more secure network. 

After a volatile month in which Bitcoin saw dramatic, if short-lived, losses of as high as 60% to around $3,600 in mid-March, the network’s difficulty yesterday decreased nearby on 16%. 

Difficulty or how challenging it is computationally to determine and verify a block on the blockchain — is set to adjust every 2016 blocks, or two weeks to keep a steady time of 10-minute for block verification. 

This has a close connection to the network’s hash rate. When the network sees a low level of engaging mining power, the difficulty will drop — while in times of deep network participation, it arises, working as a counterbalancing mechanism. The last downward change in difficulty was on February 25 of this year, when the coin’s price was around $9,900. Only three days later, it dropped to around $8,800, and by March 14, to almost $4,800 — and as low as $3,600 on some exchanges.

Data Interpretation

The relationship between price, hash rate, and difficulty have historically made a trend that some analysts refer to as a “miners’ capitulation cycle.” 

The theory maintains that while Bitcoin’s price remains high, and mining is profitable, both hash rate and difficulty inch upwards until they reach a threshold at which miners are squeezed and forced to liquidate more and more of their holdings to cover their expenses — heading to an increased supply of Bitcoin on the market. 

The “capitulation point” at which some can no longer afford to keep mining altogether, then involves a drop in hash rate (reflecting lower participation) as can be seen today and a subsequent reset in the network’s difficulty. Through the data from btc.com, Bitcoin’s difficulty is currently forecast lower by an additional 16% in the period of 14 days.

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